UK Property Market Outlook: Week Beginning 30 November

Property taxes are back in focus after last week’s government spending review. We take a closer look at what that may mean for stamp duty and capital gains tax.
Written By:
Tom Bill, Knight Frank
3 minutes to read

In its battle to contain the economic fallout from the pandemic, the government last week shifted the emphasis to longer-term solutions.

After a succession of tax changes in recent years, the property sector is sensibly assuming the terrain will keep shifting beneath its feet for a while yet.

However, an opaque mix of economic and political motives will continue to make it difficult to second-guess what comes next.

First, let’s consider the government’s approach to stamp duty. We have previously written that now is not the time for economically self-defeating measures and the SDLT holiday announced in July was designed to benefit the wider economy not just the housing market.

Together with the Home Builders Federation, we have calculated that for every 100,000 housing transactions, there is a net positive impact of just below £1 billion for the economy. In addition, more than 11,500 jobs are supported either directly or indirectly by these transactions.

The concern is the abrupt end to the holiday on 31 March next year while the conveyancing system struggles to cope with the sizeable wave of transactions begun in recent months.

Is the government likely to extend or taper the scheme? On the basis that a tax cliff-edge means the forces of gravity then take over, Knight Frank believes it is a sensible proposition for the wider economy to extend and taper the holiday.

Tapering would mean allowing transactions that have not completed to benefit from the holiday, provided they are at a certain stage in the process when the holiday ends.

Is that likely? “The Treasury is remaining tight-lipped,” said Mark Hayward, the chief executive of NAEA Propertymark, a professional body representing estate agents. “The OBR have confirmed they believe the end of the holiday will have a detrimental impact on house prices next year. It could be the government wants to wait until early next year when we know more about the extent of the logjam and state of the wider economy.”

If the arguments around the stamp duty holiday are economic, proposals to align rates of capital gains tax with income tax have prompted accusations of political interference. Under the plan, set out by the Office for Tax Simplification, CGT bills would rise for higher-rate and additional rate taxpayers.

“The proposals are not likely to raise significant sums,” Nimesh Shah, CEO of tax advisory specialist Blick Rothenberg, told Knight Frank. “My estimate is that the current take of £10 billion would double to £20 billion, which is two months’ worth of furlough payments.”

He believes the government has backed itself into a corner by refusing to raise the so-called ‘big three’ of VAT, income tax and national insurance, which he says account for around three-quarters of the UK’s £635 billion total tax revenue.

“It leads me to wonder what the real motive is,” he said. “They can sell a message to parts of the electorate, including in the so-called ‘red wall’ seats, that those with the broadest shoulders are bearing the greatest load, but there is no financial logic to it and you risk business owners leaving the country. Last week, shadow Chancellor Anneliese Dodds told me Labour’s main concern in the near term was protecting the tax base.”

One central question surrounds the question of timing. If the political impetus to act quickly is stronger than the economic rationale, it could be counter-productive for tax purposes, even a phased introduction.

“If the government announces it a year in advance, there is obviously more scope to raise revenue because property owners have a window in which to sell before the new rates come in. If it is brought in quickly, the government is arguably shooting itself in the foot. But that leads me back to my question of why the government is doing it in the first place.”