In 2014, several major reforms were proposed, and some implemented, to property taxation in the UK.
Among the most noteworthy developments are the Labour Party’s proposed ‘mansion tax’ and the
change to the stamp duty system announced in the Autumn Statement. As other aspects of property
taxation have been reformed recently with the aim of establishing a more efficient and fair system, this
report considers if the opportunity exists to also improve the current scheme of council taxation.
The proposed mansion tax is an annual levy on residential properties valued above £2 million.
Labour Party has stated that the tax will raise £1.2 billion annually for the NHS. In an earlier report Cebr
estimated that in order to raise the stated amount, homeowners whose properties are valued above £3
million will pay an average of £24,000 in tax annually.
As of Dec 4, 2014 all residential property sales in England and Wales are subject to a new, more
progressive, system of stamp duty.
The reform translates into lower stamp duty payments for 98% of
home buyers and the Office for Budget Responsibility estimates that as a result of the reform, stamp
duty revenue will decrease by £760 million in the coming year.
The current council tax system places properties into bands based on property values assessed in 1991
and is thus outdated.
In the over two decades since the valuation house prices have increased
throughout the UK, but at vastly different rates. Average house price in London has increased 399% in
the time period, while East Midlands, the region with the most subdued house price growth, has
witnessed an average price increase of 219%.
With just eight bands currently in place, the council tax system is not particularly progressive.
highest band, Band H, applies to those that occupy properties worth over £320,000 (1991 value), with no
more detailed breakdown available above that value. To illustrate, an occupier of a property that today is
in Band A would face an average council tax payment of £979. A home which is in Band H and can thus
be worth millions of pounds would be paying £2,936 on average. Hence, while the prime property can be
worth more than 20 times the value of the modest one, it only pays three times as much in council tax.
A home revaluation and the addition of three bands above H would contribute £4.7 billion additional
revenue to tax receipts in 2015-16 and a total of £25.6 billion by 2019-20, while only costing £257
million to implement.
In addition to generating more revenue, the reformed system would shift part of
the tax burden to occupants of very high value properties and those that have benefited from above
average house price growth. However, given that the average cost of moving up one band is £350
annually, the reform is unlikely to create substantial market distortions.
Property taxation reform
Estimated impact on revenue in first year of
New stamp duty system
Reformed council tax system
© Centre for Economics and Business Research - Report Commissioned by Howard Cox for the FairHomeTax.UK Campaign