The institute said the UK’s £7.5trn property stock was currently taxed in “strange and inconsistent” ways. Residential council tax is based on a valuation system that hasn’t been updated since 1993; businesses pay at high rates; and homeowners pay rapidly escalating transactions taxes (SDLT), but private residences are part-exempted from inheritance tax and exempted from capital gains tax.
Remove SDLT, reform Council Tax
The Institute proposed a rationalisation of the UK’s property taxation system by abolishing SDLT altogether, and then rolling Council Tax, and business rates into one system, with everyone paying the same rate, set at roughly 20% of the equivalent rental income. It believes this could lead to large increases in revenue for the Exchequer over time.
The government collected £15.5bn in stamp duty in the tax year to April 2017, up 17% on the previous year with London and the South East contributing 60% of the total. However, surveyors and estate agents have said increases to SDLT are creating inertia in the market and the government should consider reform.
The institute argued that economists view transaction taxes as damaging, meaning they destroy almost as much wealth as they create. It pointed to a survey by the Australian government, which found that Stamp Duty destroyed 75p of wealth for every £1 raised.
“Taxing housing transactions keeps people in houses that are either too small, too big, or too far away from jobs, which are especially harmful when the housing supply is so tight, as it is in the UK today,” the institute concluded.