Rumours have, once again, started swirling on the introduction of a property tax.
This time it’s a ‘mansion tax’, which would see owners of properties worth £2 million or more landed with an annual tax bill simply for residing in their homes.
The top of the market is a dangerous place for the government to play when it comes to property taxes. Why? Because it is where movement is initiated and anything that disincentivises people from buying and selling at the top of the chain inevitably creates damaging ripples through the rest of the market.
If introduced, owners of properties valued at over £2 million might decide to sell, but in one fell swoop the government has shrunk the pool of prospective buyers to only those who are willing to absorb the extra annual tax bill.
What does this do? It instantly stalls the market in the very place where movement is vital. People living in large family homes, who have benefited from vast increases in property wealth, are prevented from downsizing because they can’t sell their home.
This links directly to a broader systemic issue of under-occupation at the heart of our housing market. Nearly nine in ten people aged 65-79 live in under-occupied housing, and over half have two or more excess bedrooms, according to data from the International Longevity Centre. These are homes that are often unsuitable to people’s changing needs and until now there has been little incentive to downsize.
The introduction of a mansion tax would, technically, introduce that incentive, but it is a blunt-ended stick - and one with no carrot for the prospective buyers who might otherwise want to purchase these properties.
My concern is that, due to immediate economic pressures, policymakers are looking for quick ways to raise money while simply ignoring the deep, systemic issues that persist in our housing market today.
Successive governments have failed to treat our housing market as a cohesive whole, and the various property tax rumors that have circulated suggest this government is no different.
Rumours are already leading to caution for over 55s. Nearly three in five (57%) over-55s who live in London and are considering downsizing say their plans would be affected by the introduction of property taxes. A quarter (24%) are adopting a “wait and see” approach, 19% are less likely to downsize at all and 14% would try and downsize before any potential changes take effect. So what do we actually need to see from a forward-thinking government looking to tackle the fundamental challenges in our housing market.
We must create appealing places that people will genuinely want to downsize into. We can’t assume everyone will opt for retirement village living, but we must offer a wider array of high-quality choices: modern, well-designed flats, apartments, and cottages, as well as vibrant retirement communities.
The UK currently builds just 7,000 later-living homes annually. To meet increasing demand and genuinely ease the housing crisis, this output must rapidly scale to between 30,000 and 50,000 homes a year.
We then need incentives that encourage moving - but not blunted instruments that put up barriers. Targeted reliefs that proactively support downsizers, especially for those moving into specialist retirement communities.
In my view, mansion tax is not the answer. There are other taxes that need looking at in our property market before the government goes anywhere near new property taxes. And crucially, it must consider the ramifications of any change across the whole market.
Nick Sanderson is CEO and founder of Audley Group
