Understanding the Impact of Housing Policies on Buyers and Sellers

If you are a buyer who is not in a rush to move and might be able to avoid paying thousands of pounds by delaying a few months, why wouldn’t you wait and see? The same applies to sellers who may stand to get clobbered with an unexpected tax bill if it takes their home a while to sell, which could affect their next purchase. Wouldn’t you want all the information at your fingertips before making an expensive and life-changing decision like buying a home? This is one of the major issues with short-term housing policies like these.

Government Must Stop Using Housing as a Political Football

It doesn’t matter whether you’re trading in Wellington boots, stock and shares, or houses, markets hate uncertainty. There are all sorts of causes and effects created by endless tinkering by successive governments. They’re toying with people’s lives, their families, their homes, their security, and their ability to plan. We need a cross-party policy that’s going to stand for 25 years, not five. Everyone could get behind it, know where we’re at, and plan accordingly. Housing is too important to all of us, the whole of society. It should not be a political football.

What Are Rachel Reeves’ Rumoured Property Tax Changes?

Currently, if you are selling the home you live in, any profit you make will be exempt from CGT, but recent reports suggest that the government may remove this relief for high-value properties. The speculation suggests that sellers would pay 18 or 24 per cent tax on the increase in their home’s value, depending on whether they are a low-rate or high-rate taxpayer.

Chancellor Rachel Reeves is reportedly considering property tax reforms. Other measures reportedly up for consideration include abolishing stamp duty tax and the introduction of a national property tax on homes valued over £500,000. That figure has subsequently been denied, but if accurate, it could be catastrophic for high-cost areas like London. It certainly wouldn’t be a tax grab limited to the wealthy, but a tax on ordinary Londoners.

Capital Gains Tax Would Discourage Downsizers, Hollow Out London, and Increase Rents

There are an estimated 19.5 million empty bedrooms in the UK — so if we could only unlock space by motivating downsizers to sell, that would be a big win. But if they would have to pay a capital gains tax, why would they? It’s hard enough as it is to downsize with the thought of paying stamp duty on your next home, but a downsizer faced with having to pay tax on the equity in their family home of 20-plus years is never going to go for it. The majority of homeowners will also have paid stamp duty when they bought their homes, so to then be asked to pay CGT of up to 24 per cent on any increase in the value of their home would be a bitter pill to swallow.

People Would Sell Up and Leave London in Droves

If, as has been suggested, the CGT would come into play for homes priced over £1.5 million, it is essentially a tax on the most expensive areas of London and the South East. A tax that reduces demand in that price bracket even further would end up being self-defeating. Despite the prime market having actually fallen in value in real terms over the last decade, I expect a tax that reduces demand in that price bracket even further would end up being self-defeating. A tax on transactions impacts behaviour. Anyone with a taxable gain would think long and hard before selling, which in the long-term would heavily reduce transaction numbers. On top of this, it would also affect the prospect of future gains.

London Needs Stamp Duty Reform

If it were up to me, I would completely abolish stamp duty for first-time buyers immediately. Coming up with a big chunk of cash within 14 days of completing on a savings-draining starter home is a huge deterrent from buying, especially in London. Last month I was involved with the Stamp Duty Reform campaign, which calls for stamp duty costs to be spread over two to five years, rather than due within 14 days, a delayed payment concept HMRC are perfectly accustomed to. Having regional thresholds would address the current penalties imposed on buyers in more expensive regions. Buyers in London and the South East, for instance, should have higher nil-rate bands than buyers in the UK’s cheapest areas.

The Real Answer to the Property Tax Conundrum

If it really was to happen, I would hope any changes would be phased in slowly; but then just look at the family farm tax, which was announced out of the blue without consulting public opinion. But say it’s phased in over a period of two years — the market will go crazy to start with and then gum up and stall as the time arrives. The real answer is to create a more liquid market. When moving home is easier, quicker, and less costly, households can find the right homes, builders can supply the market, and the Chancellor collects more revenue through higher volumes of transactions. A faster, more streamlined housing market is better for families, better for business, and better for public finances.

Conclusion

The UK housing market is a complex and delicate system that requires careful consideration and long-term planning. The proposed property tax changes could have far-reaching consequences, from discouraging downsizers to increasing rents. It is essential to create a more liquid market, where moving home is easier, quicker, and less costly. This can be achieved by abolishing stamp duty for first-time buyers, introducing regional thresholds, and phasing in any changes slowly. By doing so, we can create a more stable and sustainable housing market that benefits everyone involved.

Frequently Asked Questions

Q: What are the proposed property tax changes?

A: The proposed changes include removing the relief from capital gains tax for high-value properties, abolishing stamp duty tax, and introducing a national property tax on homes valued over £500,000.

Q: How will the proposed changes affect downsizers?

A: The proposed changes will discourage downsizers from selling their homes, as they will have to pay capital gains tax on the increase in their home’s value. This could lead to a reduction in the supply of homes in the private rented sector and increase pressure on the state housing system.

Q: What is the impact of a tax on transactions?

A: A tax on transactions impacts behaviour, as anyone with a taxable gain would think long and hard before selling. This could lead to a reduction in transaction numbers and affect the prospect of future gains.

Q: Why is stamp duty reform necessary?

A: Stamp duty reform is necessary to make the housing market more accessible and affordable, especially for first-time buyers. Abolishing stamp duty for first-time buyers or introducing regional thresholds could help address the current penalties imposed on buyers in more expensive regions.

Q: What is the real answer to the property tax conundrum?

A: The real answer is to create a more liquid market, where moving home is easier, quicker, and less costly. This can be achieved by introducing policies that encourage downsizers to sell, increasing the supply of homes in the private rented sector, and reducing the pressure on the state housing system.