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4

Executive Summary

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.

The

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and is thus outdated.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.

The

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

operation

New stamp duty system

-£760 million

Mansion tax

£1.2 billion

Reformed council tax system

£4.7 billion

© Centre for Economics and Business Research - Report Commissioned by Howard Cox for the FairHomeTax.UK Campaign