Increased taxation at the point of transaction alters buyer behaviour. Since the 2012 budget, we have seen sales in the £2 to £2.2 million price bracket fall by 29%, whilst those between £1.8 and £2 million have risen by 37%.
But at what point does taxation become such an issue that it affects wider market demand. Without doubt, raising transactional taxes has less impact in a strong market when prices are rising. In these circumstances, price growth may be temporarily reduced but prices will not be undermined.
The increase in the rate of SDLT for £2 million+ property to 7% has made the prime residential market look more uncertain. The rate of price growth in prime central London has slowed dramatically in the past six months, with average price rises of just 1.2% over that period masking the fact that the majority of properties in the Savills prime central London index have seen no price growth at all.
Further taxation could have a much greater impact on the market in the current environment than would be the case in stronger market conditions.
New Taxes
Entirely new taxes, such as a mansion tax, would add a further potentially damaging burden, unless part of wider tax reform.
While ideologically straightforward, new taxes on residential property risk being complex to administer not least given a range of valuation issues that will result in additional costs to both the taxpayer and HMRC. There is also little doubt that concessions would be sought from asset rich/cash poor owners and other groups such as owners of large listed properties that carry substantial costs of upkeep.
Proposals for future taxation of high value property should take account of the cumulative effect of increases on the total tax burden on owners of that property, whether that be full UK taxpayers or non-doms (who for example are affected by the newly imposed non-doms tax levy).
Conclusions
The taxation of high value property is likely to remain under the microscope in the short term. But this requires an informed debate that distinguishes between local and central government taxation, acknowledges the fact that high value property already makes a disproportionately large contribution to the tax take and takes account of the impact on the prime property markets and the wider economy.
There is a point where too much taxation stifles the market. We could be approaching a tipping point where further tax rises or the introduction of new taxes risk killing the goose that laid the golden egg.
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