And that could work to our detriment if speculation around expected announcements in the upcoming Budget are to be believed.
Because a key talking point has been that – long before Conservative leader Kemi Badenoch committed her party to scrapping it should they ever get back into power – Chancellor Rachel Reeves was already working on plans to do away with stamp duty.
Stamp duty land tax, just to remind you, is paid on all properties costing more than £125,000. There’s a sliding tax scale for amounts over that, from 2% for up to £250,000; 5% up to £925,000 and 10% up to £1.5m. Higher than that and it’s 12%. It’s an often unwelcome additional cost for those already embroiled in the already wildly expensive cost of moving home.
For first-time buyers, stamp duty is only imposed on purchases in excess of £300,000, and at 5% up to £500,000. It’s worth noting that in the South East, according to Zoopla, some 51% of first-time buyers still end up paying stamp duty due to our high prices.
Chancellor Rachel Reeves delivers her Budget on November 26
But it’s a loathed additional cost, and when there was a stamp duty ‘holiday’ period to revive the property market during the pandemic – between July 2020 and June 2021 – it was saving buyers up to £15,000, as well as seeing house purchases increasing by 19%. Although, many would argue that uptick is through plans being accelerated rather than generating new sales.
Stamp duty does, however, raise considerable revenue for the Treasury. Between 2023-24 it pulled in around £11.6 billion.
So, what is rumoured to take its place?
One suggestion, repeatedly raised, has been to impose a tax on properties worth – or at least changing hands – for in excess of £500,000.
It remains unclear how this could be applied – if only at the point of purchase (more likely as buyers will have already paid stamp duty), or imposed on all homes above that price point, which would be politically unpopular across Kent and the wider South East.
Stamp duty could be set for reform
Property website Zoopla suggests one in three UK homeowners would be subject to an annual property tax on homes worth more than £500,000, “with the main impact in London and the South East”, adding “this would limit demand for homes in these regions where house prices have already been static for a decade, which is likely to lead to house prices falling”.
According to the HomeOwners Alliance, which “champions the interests of Britain’s homeowners and aspiring homeowners”, a tax on completion of purchase is more likely. It says “an annual rate of 0.54% with a 0.278% supplement on values over £1m would raise the same amount as stamp duty”.
If that 0.54% (taken from figures suggested by a think tank) is on the full value of, for example, a £500,000 home, that would equate to £2,700 a year. Not insignificant.
It also suggests the new property tax would be “payable on owner-occupied property only after a sale – and the replacement for stamp duty would not be retrospective on properties on which stamp duty has already been paid”.
Which would, at least, mean no additional bills for those in homes valued above the limit. It also says the payment – known as a national property tax – would rise annually by inflation.
Could homes over £500,000 face annual taxes? Picture by: Simon Hildrew
Now, for Kent, given our inflated property prices, it is likely to mean we could be disproportionately impacted.
Spencer Fortag, of Dockside Property Services in Medway, explains: “It all depends on where that tax sits. We’ve seen stamp duty revisions in the past – such as when they introduced an additional levy for buy-to-let investors. Then, we saw a stampede as purchasers tried to beat that deadline.
“Then the deadline came, and then there was a period of about two months where we saw stabilisation until landlords and investors just understood it was going to be another charge or another cost in their transaction.
“I think we’d see the same thing for any stamp duty revisions for properties over £500,000, where there may be a bit of a rush, and then we’d see a period of stability, and then people would just realign their expectations, knowing that if I’m going to buy this property for £500,000 and above, there’s going to be these extra percentage points that I’m going to have to pay.
“How does that affect pricing? Well, quite obviously, if I’ve got a property that’s just above that threshold, does it make sense to price it just below that threshold to attract a greater number of buyers?
There may be a bit of a rush, and then we’d see a period of stability, and then people would just realign their expectations
“Ultimately, if we see a large number of people reducing their price to be below that threshold, could that have an effect on slightly cheaper properties and thus down the property ladder? Well, yes, it theoretically could.”
Property website Zoopla says there are clear pros and cons to any such move. It explained: “A new annual property tax on the 33% of homes, nationally, that sell for more than £500,000 would be like stamp duty on a payment plan. The impact on you would vary depending on the value of your home and how long you stay in it.
“If a new £500k+ tax is introduced instead, first-time buyers in the South East could get an affordability boost. It’s likely to limit house price growth – which can be seen as a positive or negative for different people – but would allow buyer affordability to catch up in expensive areas.”
But aside from those price wriggles, it could also deter people from moving up or down the housing ladder – something essential to keeping a steady flow of properties available at any given moment.
Adds Spencer Fortag: “Stamp duty is long overdue a rethink. But I’ve said many times over the last two decades that people tend to think of the ladder as a one-way trip; you’re going up the ladder, you start small, then you get bigger and bigger. But not a lot of people pay heed to downsizers.
Spencer Fortag says successive governments have failed to hit the right balance for the property market
“I think that is a really important part of people’s property journey, insomuch that we should have tax breaks for people that are downsizing.
“So, looking at the other end of the spectrum, having a reduced stamp duty for those that are actually downsizing would be sensible, because that frees up that part of the market.”
That, however, may be wishful thinking.
For those aiming high, there’s also speculation that capital gains tax – a tax payable on the profit made when you sell high-value items such as stocks or second homes – could also apply to your main property. Currently, your primary residence is excluded, but there’s talk it could be introduced for properties sold for above £1.5m.
But what if the first rung of the housing ladder isn’t something you can afford or necessarily want to climb onto?
Landlords fear being hammered again in the Budget
The rental market has seen plenty of political heat over recent years. Most of this has been through the Renters’ Rights Bill, which is due to finally emerge from its legislative checks this year.
Its changes – an end to Section 21 ‘no-fault’ evictions, the end of fixed-term assured tenancies, the right to challenge unreasonable rent hikes, among others – are set to come into force over the next two years.
In addition, landlords have seen stamp duty for buy-to-let properties increase, mortgage interest-rate relief restrictions, an increase in capital gains tax on residential sales and a demand for energy-efficiency ratings to be increased.
All of this comes at a cost – all of which tends to be passed on to renters as profit margins are narrowed. Or, of course, landlords sell up, potentially reducing the stock available to rent.
Now there is talk that November’s Budget could see National Insurance applied to income derived by landlords from the properties they rent. It’d be another reduction in their income and one with potential ramifications.
Explains Mr Fortag: “Ultimately, anything that further squeezes those margins, be that NI or further legislative costs, then that is of concern to everybody.
Ultimately, anything that further squeezes those margins, be that NI or further legislative costs, then that is of concern to everybody
“The landlord bashing we saw under the Tory government actually led many people to believe that it couldn’t be much worse under Labour. However, it’s just a continuing state of worse.
“The vast majority of landlords own one property – they’re not this property empire-owning sector of society that have 10 or 15 properties. Governments continue to punish and penalise landlords – those people that are lucky enough to own a property that they want to rent out – and local councils who need landlords to support them for their housing needs.
“It’s a weird place to be in the UK right now and to be a landlord because, on one hand, you are genuinely providing people with a housing solution, but on the other hand, you’re vilified by the press, by social media, by lots of people who potentially, can’t afford to buy property at the moment for one reason or another. You are literally the villain of the piece.
“One ill-informed government after another believes that tenants’ rights are somewhat of a vote winner, but they are ignoring the bigger picture that housing remains an issue and simply attempting to penalise landlords or to revenue raise from landlords is only going to affect the people that they’re serving, that they think, misguidedly, they’re protecting, which is the tenants.
“If landlords get to the point where they exit because the taxes are too high or the legislation is just never endingly changing, then one of two things is going to happen – if not both. The first, which is most likely, is that the supply will become shorter. And obviously, with supply and demand, if the supply is shorter, prices will go up.
“If it gets to the point where it’s just too expensive to be compliant, there is a risk that we’ll see a decrease in property quality, a decrease in compliance because risk versus reward favours the balance of the risk.
“It’s never been more challenging for a landlord.”