Responding to reported speculation that the Chancellor could be introducing a property tax for people selling high-value homes, Rightmove’s CEO Johan Svanstrom said it needed to be “easier and more attractive” for people at the top of the market to consider downsizing if possible.
This so-called ‘mansion tax’ is expected to apply to properties worth £1.5m and more, while a separate property tax for homes worth £500,000 and over to replace stamp duty has also been rumoured.
He added: “There is no real incentive for someone in a large home to downsize to a smaller one unless they truly need to and can still afford the stamp duty bill. The current rumours to stamp duty changes would only seem to exacerbate this, as it may deter some at the top of the market from moving if they would then face a new annual tax.”
Rightmove’s data suggested that 30% of homes for sale in England were priced at over £500,000 and would be subject to an annual property tax to replace stamp duty.
Some 59% of these homes are in London, while just 8% are in the North East.
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Further, Rightmove’s data showed that 19% of agreed sales in England so far this year were for properties worth £500,000 and more.
Svanstrom said: “As our real-time data shows, a proposed mansion tax would only affect a small proportion of the market. However, the government needs to be cautious over the cumulative effect of taxation on higher-priced areas of the country as it simply risks stalling this part of the market, since the importance of mobility for people and the overall economy is strong in those areas too.
“A slower market can affect all types of movers, from first-time buyers to key workers and families, even if a tax is aimed at higher-value properties.”
Disadvantaging cash-poor older homeowners
These views were echoed by Nick Flynn, retirement income director at Canada Life, who said: “Introducing capital gains tax on first homes over a certain threshold will penalise older homeowners who have lived in their property for many years and are seeking to downsize. Many pensioners have very modest incomes, despite living in properties that have appreciated in value over the years. These individuals may need to rely on their properties to help fund retirement costs, particularly given the prevalence of under-saving into pensions.
“Taxing main residences will limit people’s options, discouraging mobility in the housing market and freezing people in homes that are larger than they need – running counter to wider housing policy objectives.”
Rightmove found that just over 1% of all home sales agreed this year were for properties over £1.5m, with 11% in London, 0.7% in the South West and 0.1% in the North East.
Sarah Coles, head of personal finance at Hargreaves Lansdown, said the speculation was “profoundly distressing” for older homeowners who were property-rich and cash-poor.
She added: “They’re worrying about the prospect of a whole host of options that could mean more tax if they stay in their home, and more tax if they downsize to something more affordable. There’s also the stress of whether the amount of tax they would pay on downsizing could mean they can’t free up the cash they need – and may not even be able to afford a smaller property.”
Coles said this could have an impact across the housing market, saying: “People in the process of trading up may decide to pause a purchase, because they’re worried about the tax burden they may be taking on. Meanwhile, those trading down might be in a hurry to part with a property they’re concerned could become a tax liability.
“An imbalance of demand and supply in what is already a buyer’s market could depress the price of more expensive properties, so that downsizers have to cut their selling price, blowing a hole in their retirement planning.”
An easier transition from renting to buying
However, Rightmove said if buyers no longer had to pay property taxes, “it could make the transition from renter to first-time buyer a little easier”.
He added: “Five years on from the pandemic, rents have seen a 44% increase and average supply is 26% less, so renter access and affordability is very stretched. The rumoured stamp duty changes don’t appear to apply to buy-to-let properties, so we wouldn’t expect any immediate impact on landlord supply, although they face many other tax pressures adding to the concerns of adequate supply going forward in the market.”
Slowing down the housing market
Svanstrom said putting the tax burden onto sellers would result in savings for first-time buyers, but this could be “wiped out” if sellers try to cover the extra costs by increasing their asking price.
Svanstrom said shifting the tax burden to buyers would need to be phased in to avoid a slowing down in the housing market, as any seller who recently paid stamp duty as a buyer would “clearly be at a disadvantage”.
“As we’ve seen around moments such as stamp duty changes, we could see some distortion in the market for properties at or close to the £500,000 mark if this does end up being the threshold, with movers at this price range understandably keen to avoid the new tax if they can,” he added.
