The UK should make “greater use” of “housing sin taxes”, abolish stamp duty, introduce longer mortgage terms, encourage high-loan-to-value (LTV) mortgage insurance and reform council tax.
A report from the Social Market Foundation (SMF), which was funded by Nuffield Foundation, called for a number of measures including a tax on vacant homes, an abolishment of stamp duty and reforms to council tax.
‘Housing sin taxes’
The report called for “housing sin taxes” on non-resident home purchases, vacant homes and house flipping to “generate a useful source of revenue for the Government”. It noted that it had not achieved its original objective overall of improving housing supply.
The report stated that the latest figures showed that there were 181,000 properties in England and Wales owned by individuals with a correspondence address outside the UK, with an additional 20,000 in the UK.
The SMF said that, assuming these properties are the average price of a home in each region, a 25% tax could bring in £855m. This could be done by increasing the surcharge on stamp duty land tax.
A 1% tax on vacant properties, which is estimated at one-and-a-half million homes, could generate £4.5bn per year.
By imposing a 50% tax on profits generated on home sales, which Hampton data indicate stood at 26,340, with an average profit of £42,800, then this could raise over £550m in England and Wales alone.
Another recommendation in the report is allowing insurers to provide mortgage insurance for high-LTV mortgages as an “alternative path to homeownership” that will lower deposits and increase security.
It also called for lenders to be allowed to offer fixed rates for entire 30-year terms, as well as 15 and 10 years, by “altering affordability requirements and encouraging demand by mandating greater information” for mortgage applicants. This will make mortgage payments more stable.
Abolish stamp duty
The report stated that stamp duty should be abolished to allow homeowners to downsize and encourage efficient movement in the property market.
The SMF said that stamp duty brings in 0.5% of the Chancellor of the Exchequer’s annual funds, and to replace this, a capital gains exemption for secondary property sales should be abolished and taxed as income.
This could increase revenues between £6.4bn and £10bn, which “would significantly help to decrease the cost of abolishing stamp duty while cooling demand for secondary homeownership, leaving more homes available for first-time buyers”.
Council tax reform key
The SMF added that council tax should be reformed to make it more “progressive”. This would involve bringing in a more regular valuation system to re-evaluate properties every three years, based on its average value over that period.
“This would abolish banding and tax property owners on a continuum. This would ensure homeowners pay a fair amount for the value of their home and ensure councils receive a more steady income to avoid Section 114 notices, which effectively declare them bankrupt.
“Further, by re-adjusting every three years and charging residents on an average rather than on a single value, local residents would not be victim to temporary increases to their home’s value,” it explained.
It added that council tax rebates should be offered to private sector renters to help them save for deposits; no other country in the Anglosphere charges a local tax on those who do not own property.
In the UK, private tenants are charged the same council tax as homeowners, which the report noted prevents them from saving for a deposit.
The SMF said that local authorities should save half of a renter’s council tax into a personal savings account, which could then be used to buy a property or withdrawn and transferred into a pension fund if the renter does not wish to buy a home.
The fall in council tax income could be offset by replacing lost funds with increased rates for homeowners, or formula grants could be introduced so the central Government can avoid increasing council tax.
Gideon Salutin, senior researcher at SMF, said: “One-and-a-half million homes are left vacant in the UK, while 200,000 are owned by individuals who are not residents in the country.
“At a time when the country is desperate for homes and the Government desperate for money, we should be using these as sources of revenue, rather than letting them sit idle. The billions in revenue these taxes could generate should be used to help those losing out in the housing market.”
Related: 100% council tax crackdown on long-term empty homes
