Emma Sear
- Partner
- Residential Property
In the news this week, headlines have been dominated by speculation of no less than 4 major tax changes that could reshape the residential property market. With the Autumn Budget approaching, uncertainty is mounting over how these proposals might affect buyers and sellers alike.
In no particular order, key proposals under consideration are:
Stamp Duty Reform – abolishing stamp duty land tax (SDLT) on properties over £500,000 (or such other threshold as the government might set) in favour of a tax paid by sellers on the sale of a property;
Annual Property Tax – a new levy on higher value properties – possibly tied to council tax reform;
Council Tax Reform – long overdue reforms to the antiquated council tax system;
Wealth Tax – introducing capital gains tax (CGT) on private residences over £1.5 million, removing current exemptions on private residences.
With no detail and no official confirmation from the government as to their plans, the information that has leaked into the press will no doubt cause confusion and leaving both buyers and sellers in limbo wondering what to do in the weeks ahead.
Proposals to do away with SDLT on properties above £500,000 in favour of a sales tax or to introduce CGT on those properties over £1,500,000 might see seller’s racing to off load properties ahead of any change to avoid paying the new taxes.
On the other hand, buyers in the price bracket above £500,000 may want to stall their purchases in the hope of being freed from SDLT or may wish to reconsider their purchases until more information is available in relation to any annual charge that might be introduced. Similarly those over £1,500,000 might want to re-consider buying if faced with a CGT charge in the future. We have already started to see buyer clients saying that they are considering their options and showing reluctance to exchange as a direct result of the headlines coming out – not good news for sellers in an already slow market.
In the long term, replacing SDLT with a seller-side tax (assuming there would be no double taxation or that allowances would be made in any sales tax for stamp duty already paid on purchase), could shift market dynamics. While buyers might benefit from reduced upfront costs, older sellers – especially those considering downsizing – could be discouraged by new tax burdens. This could exacerbate housing shortages for families and stall efforts to free up larger homes.
Potential buyers with an eye to the future might decide that they are better to spend their money on extending their existing properties to create the space they need rather than facing the sales tax further down the line, assuming that such improvements wouldn’t push them above the £500,000 band of course.
Potential downsizers around the £500,000 band might find that they would be liable for the sales tax on a sale above £500,000 and then still pay stamp duty on their purchase if below the £500,000 threshold and therefore decide to stay put.
It seems inevitable that there would be a cliff edge around the £500,000 band and a clear divide between the needs of buyers and sellers and, whilst properties under the £500,000 threshold might see increased activity, they would probably be subject to a false ceiling supressing values to avoid falling into the sales tax/annual tax net.
The good news for buyers and sellers is that, unlike stamp duty changes in the past, some of which have been brought into immediate effect on the day of the Budget, it is hard to see how such sweeping changes as abolishing SDLT and introducing new tax regimes could be brought in without a significant amount of time being spent on drafting, negotiating and passing the required new legislation. It is possible that CGT changes could be implemented more quickly by amending existing legislation and this risk might create a rush of sellers trying to off load properties above £1,500,000 before the budget – providing that buyers can be found who are willing to risk disadvantageous changes being brought in down the line.
One thing is clear: speculation alone is expected to impact market confidence. With weeks to go before the Budget, the residential property market faces a real risk of stagnation – driven not by policy but by a fear of what might come.
This article is for general information purposes only and does not constitute legal advice or a comprehensive statement of the law. Specific legal advice should always be sought in relation to individual circumstances.
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