“In this world nothing is certain except death and taxes”, famously wrote Benjamin Franklin, one of the founding fathers of the United States, in the late 18th century.

In early 21st century Britain, little is more certain than the distortion of the housing market that precedes an anticipated tax change.

RACING CERTAINTIES

In recent years, this has been proven conclusively as stamp duty holidays have come to an end, with transactions ballooning prior to pre-announced deadlines and plummeting immediately thereafter.

The experience of recent months shows that there doesn’t need to be any certainty about the nature of the changes for them to have an impact. As our buyer and seller survey shows, newspaper speculation about what might be in the Budget has dampened buyer demand at the top end of the market and, to a lesser degree, the commitment to sell in the short term.

And, as Frances McDonald reports, this has contributed to further softening of prices in the prime market over the summer and early autumn.

THE PERILS OF KITE FLYING

Those media reports have suggested the Treasury has, among other things, been running the slide rule over replacing stamp duty with an annual tax on properties worth over £500,000. They have also floated the idea of removing CGT relief on the sale of an individual’s main home where it exceeds, say, £1.5 million. That, unsurprisingly, has precipitated calls from other quarters to reform a Council Tax system that remains based on 1991 values, except in Wales where they live in the land of 2003.

How much of that kite flying has come directly out of 11 Downing Street is a moot point. But, with a substantial deficit to fill, and more obvious avenues to do so closed off by manifesto commitments, the taxation of high value homes has come under great scrutiny.

We have, of course, been here before.

LESSONS FROM THE EARLY 2010s

In the first half of the 2010s, both the Liberal Democrats, as part of the coalition government, and Labour flirted with proposals for a Mansion Tax. Ultimately, these fell by the wayside.

The revenue-generating potential was offset by the practical difficulties in its administration, the political optics of what it would mean for asset-rich, but income-poor homeowners, and an uncomfortable indistinction between gross and net wealth.

The death knell for this policy was ultimately sounded when Labour lost the 2015 General Election. But the bell started swinging in December 2014 when the Conservative government overhauled stamp duty; simultaneously doing away with the much-derided ‘slab’ structure, reducing the liability for 98% of buyers, and pushing the liability further on to high value homes.

SURCHARGES INTRODUCED AND INCREASED

There have been further changes to SDLT and its Welsh and Scottish counterparts since. Reliefs have been brought in for first time buyers, and the surcharges for the purchase of investment property and second homes were first introduced, and then increased, with a top-up charge for non-UK resident buyers in England and Northern Ireland. And so, the case for raising more tax from the top end of the market has, if anything, shrunk.

All this time, however, Council Tax has gone largely unchanged. The recent introduction of increased charges for second home owners has been the exception. Pertinently, this has become one of the most price sensitive parts of the market.

More generally, the regressive nature of Council Tax has remained a major source of irritation to those who champion its reform.

REGRESSION ANALYSIS

“Taken together, the regressive nature of Council Tax and the progressive nature of stamp duty substantially offset each other, across most of the bands.”

Local government finance dictates that localised differences remain. But even these are dampened by higher current day values in London across all of the Council Tax bands, resulting in higher stamp duty bills (most noticeably among properties in the higher bands of G and H).

DRAWBACKS AND DOWNSIDES

All of this needs to be set against the drawbacks and downsides that have inevitably come out of the woodwork, as various options have been discussed in the media. High among these is the ability to generate additional revenues quickly, without creating undue levels of unfairness. Our analysis suggests this is very difficult to deliver. The risk of unsettling a housing market in the early stages of recovery, at a time when government has lofty aspirations for housebuilding, will also be a concern.

And so, however the government proceeds, its kite flying exercises of 2025 risk being much less productive than Benjamin Franklin’s own kite experiment of 1752. That ultimately resulted in the invention of the lightning rod, which has since served to protect buildings and their inhabitants. Much better that, than the delivery of a nasty shock with no guarantee of a positive fiscal outcome.

AND OUR SURVEY SAYS…

Our survey suggests that, of the proposals floated so far, the imposition of Capital Gains Tax on disposals of high-value properties would cause the most disruption to the top end of the market. That said, its revenue-raising ability is far from clear, given a lack of sustained upward pressure on prices over the past 10 to 15 years. There is also potential for it to deter longer term owners from moving, who are more likely to be sitting on a meaningful gain.

It also suggests the replacement of stamp duty with a commensurate annual charge would have the least impact on future demand. But, this depends on how it is administered and the exact scale of the charge. If it is only applied as properties transact, the Treasury would be swapping upfront receipts for the promise of future annual payments, creating a substantial and immediate revenue shortfall. To change it more widely would result in strong calls for tapered relief to be given for those who have paid stamp duty in the last ten years or so.

Council Tax reform sits somewhere in the middle, perhaps an acknowledgement of its outdated nature. However, a revaluation alone would simply redistribute the liability at a local level without raising revenues. Adding a few more Council Tax bands and ring-fencing receipts might at least avoid this. But, more substantial reform that breaks the link between local government spending and taxation charges would drive a coach and horses through existing local government funding models.

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_{Read the articles within Prime UK Residential – Autumn/Winter 2025 below}