Speculation is rife as to the likely tax targets in the forthcoming Autumn Statement. We offer our odds:
SDLT 10:1
The replacement of stamp duty land tax with an annual property tax on primary residences worth over £500,000 (charged at 0.54% between £500,000 and £1 million, rising to 0.81% over £1 million) has been moted – rumoured to only apply to newly transacted properties (existing stamp duty surcharges would remain for second homes and overseas buyers).
For someone buying a £2 million property, the £153,750 stamp duty charge would be replaced by an annual tax of £12,150, while for a £5 million property, £513,750 stamp duty would be replaced by £36,450 a year. Whether buyers would be better or worse off would depend on how long they then own the property – in these two examples the tipping points would be 12.7 years and 14.1 years of ownership respectively.
Such a proposal could encourage a return of the 3 to 5 year purchase, with people once again moving up and down the ladder with each life stage, in contrast to the minimum 7 to 10 year timeline buyers have adopted in recent years in order to justify the stamp duty cost. However, the drop in immediate tax take makes this option less attractive to a cash-strapped Chancellor.
CGT 20:1
The removal of capital gains exemption for primary residences worth over £1.5 million has also been mooted.
Since Capital Gains Tax ceased to be Index-Linked in 2008, sellers have effectively ben taxed on the declining value of the £. Whilst much is made of the escalating values of property (it is not uncommon for a purchase in 1995 for £850,000 being offered today for £1.75 million), Bank of England statistics demonstrate that the declining value of £1 over this period (through inflation) shows this apparent gain actually failing to realise any increase in purchasing power. In other words, a higher rate tax-payer would be predicted to pay over £200,000 in Capital Gains Tax on……absolutely no gain at all!
Such a move would predictably flat-line an already largely dormant market (home owners simply holding their planned move off until a change of government).
WEALTH TAX 15:1
Rachel Reeves has already indicated wealth taxation as ‘being part of the story’ in her Autumn Statement (a favoured projection is for an annual levy of around 2% on wealth in excess of £10m – a University of Warwick tax simulator suggested that this could raise around £24bn a year).
While wealth taxation attracts greater public support than IHT rises, elsewhere it has consistently failed to generate its anticipated revenue (and the Institute for Government predict it could take four years to implement).
Other suggestions have included a one-off levy over a much lower wealth thresholds (a proposal from a Wealth Tax Commission for a one off levy, paid at 1% for five years on all net wealth over an individual threshold of £500,000 could raise £160bn – or over £30bn annually) – however, in our view, the Treasury would be facing a significantly greater task in assessing personal wealth (and the inevitable challenges on valuations that such a levy would create).
MANSION TAX 10:1
The latest Treasury ‘leak’ is that Mrs Reeves is considering imposing a 1% ‘mansion tax’ on all properties worth more than £2 million (an idea first mooted in Ed Miliband’s 2017 manifesto).
While such an idea would play well to the left of her party, the practicalities of imposing such a tax look to be insuperable; even if the Valuation Office could take on the task of assessing all candidates, it would face a deluge of appeals (particularly when the imposition of such a tax would devalue the market).
INHERITANCE TAX 1:1
While everyone has a £325,000 personal allowance, the main residence nil-rate band of £175,000 (for leaving your private dwelling to your family) is almost certainly under threat.
COUNCIL TAX 1:1
Council tax bands are set by the Valuation Office Agency, based on the price that a property could have been sold for on the ‘antecedent date’ (1st April 1991). Currently there are eight bands; properties valued over £320,000 at that time fall into Band H.
It has been suggested that there should be two additional bands (?J and K?) into which higher value properties should be allocated, each paying a proportionally higher rate of tax.
Whilst facing the inevitable challenges over valuations. Such a system would be easy to implement (sale values being capable of computation from Land Registry data) and could be forecast to generate a significant surge in revenue as early as April 2026. Such a system would, however, create a significant dilemma when charging those who are capital rich but revenue poor.
The uncertainty resulting from all this speculation having virtually paralysed the country house market, we fervently hope that the effects of whatever burdens are imposed on high net worth individuals are rapidly assimilated, values adjusted, and ‘normal service to be resumed’!
Such a proposal could encourage a return of the 3 to 5 year purchase, with people once again moving up and down the ladder with each life stage, in contrast to the minimum 7 to 10 year timeline buyers have adopted in recent years in order to justify the stamp duty cost. However, the drop in immediate tax take makes this option less attractive to a cash-strapped Chancellor.
CGT 20:1
The removal of capital gains exemption for primary residences worth over £1.5 million has also been mooted.
Since Capital Gains Tax ceased to be Index-Linked in 2008, sellers have effectively ben taxed on the declining value of the £. Whilst much is made of the escalating values of property (it is not uncommon for a purchase in 1995 for £850,000 being offered today for £1.75 million), Bank of England statistics demonstrate that the declining value of £1 over this period (through inflation) shows this apparent gain actually failing to realise any increase in purchasing power. In other words, a higher rate tax-payer would be predicted to pay over £200,000 in Capital Gains Tax on……absolutely no gain at all!
Such a move would predictably flat-line an already largely dormant market (home owners simply holding their planned move off until a change of government).
