Middle-class families brace for ‘lethal cocktail’ of property taxes as Chancellor scrambles for cash
Labour has been willing to make enemies during its first year in power. Pensioners, employers, farmers, non-doms and parents with children in private school have all been squeezed by the taxman.
Now, the Government seems to be turning its sights on a fresh source of revenue: middle-class homeowners. For the Treasury, the spoils are potentially enormous.
But with that reward comes huge political peril.
“The cliché about an Englishman’s home being his castle is a cliché for a reason,” says political analyst, James Frayne. “It’s based on a deep-rooted English obsession with homeownership, and a belief that the state shouldn’t step into their front gardens, let alone over their welcome mat.
“This should make any politician wary about going after people’s homes. The Government’s inevitable claims that they’re going after the wealthiest will pass English voters by. This is about principle.”
Recent experience offers grim warnings. The Tories came a cropper on property-related taxes in government less than a decade ago, when their election manifesto put older people’s homes at risk to pay for social care – a measure so unpopular it arguably cost them a majority at the subsequent election.
“The bottom line is this,” says Frayne. “Only politicians who have lost their grip on reality think it’s a great idea to go after English voters’ homes.”
Nonetheless, Chancellor Rachel Reeves is said to be drawing up plans for a fresh tax raid on property, as she struggles to boost the economy and plug a £50bn black hole in the public finances.
A series of briefings this week point to a possible “mansion tax” or an annual levy to replace stamp duty, but there are many levers the Chancellor could pull in the upcoming Budget.
Already, Britain’s property tax system is a complex web riddled with inefficiencies and ripe for reform. Many existing levies either penalise the poorest homeowners or act as a drag-weight on the economy.
But potential tax changes are fraught with risk – and could well backfire on Britain’s fragile housing market. One of the biggest dangers is that the tax burden will fall not on a wealthy elite, but a squeezed middle already paying the country’s bills.
So what could be in store for British homeowners this autumn?
Annual property tax
In the last 30 years, stamp duty has morphed from a small charge that few people paid into a substantial cost incurred by millions of home movers.
The tax, levied on home buyers, starts at 2pc on the slice of a property’s value between £125,001 to £250,000, rising to a top rate of 12pc on the portion over £1.5m (and 17pc if you already own a home). First-time buyers get a discount, but the cost of stamp duty can often exceed an annual salary.
Economists have long argued that stamp duty discourages people from moving up and down the property ladder, undermining dynamism in the economy. It punishes families at all stages of life, from first-time buyers to older downsizers.
The Institute for Fiscal Studies (IFS) has called on the Chancellor to scrap stamp duty, calling it Britain’s “worst and most damaging tax”.
“Getting rid of stamp duty would oil the wheels of the housing market,” says Tom Bill, of estate agency Knight Frank.
The question is what should replace it.
See Related Video Below
Rachel Reeves drops pledge to protect homes from council tax overhaul
Chancellor had previously ruled out reforms such as revaluation, adding extra bands or raising rates for more valuable properties
Rachel Reeves has refused to repeat a pre-election pledge not to hit middle-class families with higher bills by overhauling council tax.
Labour frontbenchers had ruled out any reforms to the system, such as a revaluation, adding extra bands or raising rates for more valuable properties.
But on Saturday the Treasury would not stand by that commitment, saying only that the Chancellor wanted to “keep taxes for working people as low as possible”.
It comes amid speculation that Ms Reeves is planning a raft of new property levies as she struggles to fill an estimated £50bn black hole in the public finances because of higher than expected borrowing and sluggish growth.
Labour categorically ruled out making any changes to the current system of council tax bands a fortnight before last year’s election was held. Ms Reeves, the then shadow chancellor, told The Financial Times that a revaluation of the bands was not “where I’m going to put my political energy”.
But it now appears that the commitment has been dropped after the Treasury refused to say that the Chancellor still stood by it. Sources close to Ms Reeves told The Telegraph she would be looking at property taxes as part of wider efforts to boost growth.
Council tax, based on property valuations from 1991, has been heavily criticised, with the top band covering homes worth £320,000 or more. Because of the uneven growth in house prices since then, families in the North and Midlands now pay proportionally more than those in the South.
Labour-run Wales has unveiled plans, since delayed, for a revaluation and the introduction of new bands for more valuable homes. Meanwhile, in Scotland the SNP increased the rates for properties in the higher E-H bands compared to those levied on houses and flats that are worth less.
The Institute for Fiscal Studies has calculated that, if Ms Reeves were to follow that example in England, councils would raise an extra £1.5bn a year. If she were to go further, and increase rates for higher bands by 50 per cent compared with other properties, they would bring in around £3.5bn more.
[…]
Official data suggest that increasing council tax on the highest F, G and H bands would hit more than a million homes across England and Wales.
The Telegraph: continue reading
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OUTRAGE! What They Just Announced For YOUR HOME!!!
NEIL MCCOY-WARD
WATCH:
Featured image: The Telegraph
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