Painting the Houses Blue
A taxing problem
How fair is property taxation?
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While the election outcome means that a mansion tax is now off the table, it is still worth thinking about how the government may choose to raise money from housing in the future. The mansion tax was ill thought out and by casting an arbitrary £2 million figure was seen to be unfair and unduly punitive in some areas of the country. However there is a growing feeling that the taxation of property has become less fair over time.
The reason for this is that the price of property at the higher end of the spectrum has risen faster than those at the bottom, but council tax bandings have not kept up. As a result those in the most expensive homes have seen the amount of tax they pay as a proportion of the property value fall over time, while those at the other end of the scale have not.
Council tax bands were set back in 1991 and the original banding class, A to H, remains with the property throughout its life, regardless of the rise in its value. The only times that a council tax band may change is if there are significant alterations to the property, or there was an incorrect banding that is overturned on appeal.
Looking at the burden of council tax over time in relation to property value illustrates this point quite well. Eight of the ten areas in England with the lowest burden of council tax to the value of the property are also in the top ten of local authorities where house prices have risen the most since 1995.
Of course the changes to stamp duty last year mean that the most expensive properties now face a much higher burden on purchase, but this is a one- off cost.
Should the new government decide that it wishes to reassess the taxation of property it seems most likely that it would consider a reform of council tax. The Welsh government did this in 2005, adding another, higher council tax band, in an attempt to alleviate the issue. The change was achieved reasonably quickly and was broadly well received, so a blueprint exists should the political pressure for a reform rise.
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