Property tax rumours: Why advisers must prepare later life clients for all outcomes – Harris

In August, The Guardian reported Chancellor Rachel Reeves is considering a new national property tax to replace stamp duty. Essentially a levy on home sales, though the details remain unclear.

Let’s be clear from the outset: this is almost certainly a fishing exercise. It is not a fully formed government policy, nor has it been announced in a Budget, and we still have a way to go before anything is announced. What it does represent is an attempt to gauge sentiment at a quiet point in the political calendar, when policymakers can sit back and watch how the debate unfolds.

Does that mean it will happen? Possibly. Though history shows that many such ideas are quietly dropped if the reaction is negative or politically toxic. But equally, it would be naïve to dismiss it. The fact that it has been put into the public domain at all signals that property-related tax reform is under active consideration, even if the final version looks very different.

And that is why it matters now. We don’t have a firm view on whether such a change would be positive or negative – it’s far too early for that – but it is another reminder why advisers need to be talking to clients about the full range of later life lending options available, from downsizing through to equity release and other products.

But, if it does happen, then it’s very clear to me that it has the potential to have a considerable impact on the later life lending market.

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Ramifications for the later life sector

Clearly, a national property tax on sellers could have very real consequences for older homeowners, particularly those who might otherwise be considering downsizing. These are individuals who, historically, may have looked at selling up, moving into something smaller, and using the equity released from that sale to support their retirement income, help children onto the housing ladder, cover other expenses, all of the above and then some.

Add a national property sale levy into the mix and the economics of that decision may well shift dramatically. Downsizing is already far from straightforward. It can be emotionally difficult, it comes with significant transaction costs, and there is often a lack of suitable, smaller housing stock in the right locations. If you then overlay a new tax liability, many older homeowners may simply conclude that it no longer makes financial sense to move at all.

And this is where later life lending comes in. If homeowners feel penalised for selling, they may increasingly look at staying put and unlocking their housing wealth through lifetime mortgages or other later life lending products. That route enables them to access the capital they need without triggering a tax charge because there is no property sale.

It’s worth noting that this potential policy leak comes just weeks after the Financial Conduct Authority (FCA) published its Discussion Paper on the future of the mortgage market. A significant portion of that paper focused on later life lending and the need for advisers, lenders, and policymakers to recognise its growing role in the market.

The FCA was very clear that products like lifetime mortgages are likely to become increasingly in demand in the years ahead, driven by demographic trends and customer need. The potential for a national property tax on sales would certainly add to this.

Of course, none of us know what form – if any – this policy will ultimately take. It could be dropped entirely, or it could re-emerge in a modified form in the Budget as part of the government’s wider approach to property taxation. But even the suggestion is instructive. It highlights how fragile the downsizing proposition already is, and how easily it can be undermined by a further layer of cost or complexity.

For advisers working in the later life space, the message is clear: conversations with clients cannot focus solely on the binary choice between staying put and downsizing. There are now an array of alternative routes available to access housing equity, and the regulatory direction of travel suggests these will only become more important over time.

At More2life, we have long argued that later life lending has the potential to transform how older homeowners think about their wealth. The FCA’s Discussion Paper reinforces that, and debates such as a national property tax only strengthen the case. If moving becomes less appealing to older homeowners, either because of emotional ties, lack of housing choice, or potential new taxes, then advisers will need to be ready to explain and deliver the alternatives.