Now that the budget has been confirmed for 26th November we have the doubtful privilege of being subjected to nearly three more months of kite flying, leaks and speculation. At least it gives the 24 hour news channels something to talk about.
One important point to make initially is that as housing is a devolved matter for Scotland and Wales any changes in SDLT introduced by The Chancellor would only apply to England & N Ireland. Likewise local taxation, which includes Council Tax, is devolved to all three of the other UK countries and so any changes will only apply to England.
Following his promotion Torsten Bell’s influence on several of the kites being flown has become even more obvious. One kite in particular, if introduced, could easily turn out to have the same negative political impact on Labour as Teresa May’s so called dementia tax and Margaret Thatcher’s so called poll tax did on the Conservatives.
Calling the imposition of capital gains tax on higher value properties a Mansion Tax will not avoid it being seen as the thin end of the wedge. Even if such a tax initially only applied to properties sold for over £1.5m, we have all seen mission creep with other taxes and the obvious fear is that over time the minimum property value subject to tax would fall and/or the rate of tax would increase. Even if it didn’t over time fiscal drag would catch more sales.
However, perhaps the biggest reason not to introduce this tax is that there has been little or no increase in the value of prime central London properties, especially flats, over the last 10 years and some sales will generate a loss, opening up the possibility of using the loss to offset other gains.
Many sellers will have already paid a hefty amount of SDLT when buying their property and in any case as much or all of the capital gain will be due to general inflation. Imposing CGT on sale will mean in many cases there won’t be enough equity left to make it worth moving. Furthermore, without tapering the cliff edge would be such that there would be a massive void of property sales above £1.5m, with obvious distortion to the property market.
Imposing CGT on high value sales would also stifle other transactions, as the impact would reverberate down the price range, making putting chains together more difficult. Any tax from imposing CGT on high value sales would likely be offset by reduced transactions at lower price backets.
However, reducing SDLT to Nil up to, say, £500,000, would encourage many people to move who are now put off by the amount of SDLT they would have to pay. The extra activity in the property market would help achieve the Government’s growth objective and more activity means more jobs, thus generating more income tax and NI and reducing social security payments.
It also means more VAT as most people spend significant amounts on VATable items when moving home, as well as VAT on all the necessary professional services. Most SDLT is generated at the higher property values and from surcharges such as on 2nd properties and overseas buyers. Therefore once the positive impacts for the Treasury are factored in, eliminating SDLT up to £500,000 could easily be cost neutral or even a net benefit to the Treasury.
Council Tax needs to be radically reformed but there is a relatively simple way to do this and the longer it is put off the bigger the problem becomes. All governments keep kicking this particular can further and further down the road but with desktop valuations of most properties now able to be done relatively cheaply and quickly The Government should go out to tender for a valuation of all residential properties in England. I would expect several companies to be interested in bidding for such a massive contract.
Coupled with an up to date valuation 2 or 3 additional bands should be introduced, which would make the system much fairer. Although Council Tax is collected and retained by local councils, if as a result of the changes the amount collected increased significantly it might be possible to reduce the Government grant to local authorities, although as most councils are cash strapped it might simply be a good way of bailing Councils out of looming bankruptcy!
