OPINION: Given the UK housing market’s £10 trillion value, is a tax increase on the horizon? – TNT

The value of all homes is over £10trn, according to Zoopla, that’s ten thousand billion, more than 3x the value of UK equities. Notably, 85% of this housing value is equity, mortgage free

The taxation of housing varies across the world. Most countries have a form of council tax, on outdated values, and taxes on transactions. Nine countries have tried wealth taxes since 1990, but all but two have dropped them as they don’t deliver the expected outcomes.

The tax raised from UK housing has increased over recent years. Most of the money raised from stamp duty comes from a smaller proportion of homes or sales, in higher value parts of the country, with those owning more than one property footing most of the bill due to a higher rate. Has stamp duty become a quasi wealth tax?

Stamp duty / transaction taxes

The big money raiser is stamp duty. In England and Northern Ireland home buyers paid £8.5bn in 2023/24. This was dragged lower by tax reliefs that have just ended – in 2022/23 stamp duty raised £12bn.

Stamp duty is largely a tax on buying homes in southern England – London and the South East accounted for over £5bn or 62%of stamp duty. The higher 3% – for people with more than one home – applied to over 20% of sales, yet these generated over half of all stamp duty receipts (53%). This rate has now increased to 5%, meaning more tax income for the government from those with more than one home. Overseas buyers of property have also been targeted, accounting for 2% of sales and 14% of stamp duty, with most of this generated in London.

Regular home buyers with no extra property pay around a third of stamp duty. Our latest analysis shows 40% of first-time buyers now paying stamp duty with the biggest hit across southern England. Over 80% of homeowners are paying more as the 2% band returns. The end of stamp duty reliefs will generate more cash for government but the higher costs will impact people’s ability and desire to move home across the south of the country and act as a drag on the housing market.

Outside southern England, less than one in 10 FTBs will pay any stamp duty. Regular home buyers with no extra property account for 80% of sales but just a third of stamp duty – so while it’s a tax on moving home, the impact is far from uniform.

Reducing the cost to buyers is the only way to support more home moves, especially those looking to trade up. Sadly, given the financial constraints on the government at this time means it’s hard to see the government doing anything to change the current system in the near term.

However, there are other solutions available to ease the stamp duty burden on buyers which is why Zoopla is supporting the current petition from Andrews which proposes allowing people to pay their stamp duty in instalments to spread the load. If you are interested in supporting the petition, sign up here to get it debated in Parliament.

Capital gains tax

One place the chancellor could look to raise funds from property is capital gains tax (CGT).

In 2023/24 around 15% of housing sales were liable for CGT which generated £2bn in tax paid by people selling homes that were not their main residence.

There have been a whole raft of papers written on capital taxes and possible reforms to support economic growth through better investment options and discouraging people from ‘sitting on assets’ and capital gains.

The most common proposal is to equalise tax rates between income and capital gains i.e. higher capital taxes. Residential property sales for non-main residence attracts an 18% or 24% tax on gains, while higher rates taxpayers are paying 40-45% on income.

It’s a complex area and one that is likely to continue to be talked about rather than acted upon. Even with no change, suffice to say CGT on housing will steadily increase as the tax-free gain has been reduced to just £3,000 a year down from £12,000 a few years ago.

The heavy hitter – main residence relief

While taxes on property have risen, homeowners benefit from the single most valuable tax break in the UK – tax-free capital gains when you sell your main home. This is estimated to be worth an impressive £32bn a year, 3x the value of stamp duty receipts.

None of the mainstream political parties are proposing to change this, but in an era of low house price inflation there is a huge amount of equity in the housing market that is going nowhere sitting as paper gains. Some have suggested giving property owners a ‘lifetime allowance’ for gains from property, above which you would pay tax. This falls into a long list of possible reforms for future Governments to consider.

Focus on economic growth and market liquidity

While the newspapers debate wealth taxes and other ways to raise more tax, it’s hard to see much changing when it comes to property taxes in the short term. Property taxation sits in an area of wider tax reform when the Chancellor really needs to raise tens of billions in short order.

The housing market is an extension of the economy and the property industry needs a growing economy creating jobs with rising incomes. Anything the government can do to support more home moves and remove barriers to movement is welcome and will support a stronger economy. One way to do this is enabling would-be buyers to pay their stamp duty in instalments, which is why we’re pleased to support Andrews’ petition.

Richard Donnell, Executive Director, Zoopla