This article originally appeared in Daily Telegraph on February 3rd, authored by property correspondent, Melissa Lawford.
Proposals for a proportional property tax would lower bills for some – but hike annual costs for others
Conservative MPs have urged the Chancellor to overhaul property taxation by scrapping stamp duty and council tax to slash bills for 19 million English households.
Under plans drawn up by campaign group Fairer Share, stamp duty for primary residences would be abolished and homeowners would no longer pay council tax. Instead, they would pay an annual proportional property tax equivalent to 0.48pc of the value of their home.
Analysis by WPI Strategy consultants found that under the plans, 76pc of English households would be better off, making average savings of £435 per year.
The savings would be funded by tax hikes on homeowners in the more expensive parts of the country, namely London and the South East. Here, they would pay extra taxes initially capped at £1,200 per year.
But when they opted to sell and buy a new property, homeowners would then face an annual bill worth 0.48pc of their property’s value, in lieu of paying stamp duty up front.
For a £2m home, for example, this would be equivalent to a total tax bill of £9,600 per year. The buyer would only start paying the higher rate after buying, after benefitting from the abolition of stamp duty.
That would mean the stamp duty saving on buying this £2m property would be £153,750. It would therefore be roughly 19 years before the buyer would start paying more tax overall.
Kevin Hollinrake, a Conservative MP and chair of the Property Research Group, a collection of MPs campaigning for property tax reform, said: “The time is right to put fairness back at the heart of how we tax property.”
He added: “Replacing stamp duty and council tax with a proportional property tax would ensure homes are taxed at their current value. It would also boost transactions throughout the market, creating huge economic output at a time when we most need it.”
Andrew Dixon, of Fairer Share, said that council tax “has led to low-income households paying a tax rate five to 10 times higher than those fortunate enough to live in million pound properties. The wrong households are paying the wrong taxes at the wrong time.”
The current council tax system is based on property values that were made in 1991, which have not been updated in 30 years.
Under this plan for proportional property tax, which would be revenue neutral, in 49 constituencies (all in the North and Midlands) every household would see their annual tax bills reduced. In the most deprived 10pc of constituencies, 99pc of households would benefit.
In the 44 “red wall” constituencies that the Tories won from Labour in the 2019 election, 97pc of households would save £660 per year.
Fairer Share has proposed a cap of £100 per month on existing homeowners’ extra tax bills. This would mean that in the Cities of London and Westminster constituency, 88pc of households would pay an average of £1,050 extra each year.
To protect asset-rich cash-poor pensioners, downsizers could defer paying increases in their tax bill until the point of sale.
Aaron Bell, Conservative MP for Newcastle-under-Lyme, said: “Stamp duty is a terrible tax that limits social mobility and puts families off from moving as their circumstances change. And council tax disproportionately hits renters and those with less expensive properties. I believe it is time for the Treasury to be bold and consider a fundamental reform.”
John Stevenson, Conservative MP for Carlisle, said the property tax system “needs a fundamental overhaul. I would encourage the Chancellor to be a reforming chancellor.”
Will Tanner, of Onward, a think tank, said the system of council tax valuations “bear no resemblance to reality.”
He added: “Council tax is actively working against levelling up: as a share of disposable income, Londoners pay half as much in council tax as households in the North East.”
A Government spokesman said: “We have no plans to make such changes. We have analysed Labour’s plans for such an annual house price tax, which would mean soaring bills for hard-working families and pensioners who have saved and improved their homes. These proposals would have the same faults.”
© Melissa Lawford / Telegraph Media Group Limited 2021;