Tweaking housing taxation

Tax is always going to be a thorny issue. But start talking about it in relation to people’s home and you’re on doubly shaky ground. We have given much thought to housing taxation, finding much of it to be clunky and regressive, with sharp cliff edges between different levels, and the wealthy few paying disproportionately less tax than squeezed families.

Politicians know the system is broken, but have generally avoided talking about property taxes for fear of the political consequences. But recently the Lib Dems have proposed a Mansion Tax, the OECD and IFS have called for better property taxation – and now even the Chancellor George Osborne is reportedly toying with the idea of introducing higher council tax bands in March’s budget.

As it stands, council tax on the most valuable properties (Band H) is only twice the amount payable on average value properties (Band D). A key worker living in a Band D property in Kensington and Chelsea, worth say £250,000, pays £1,079.12 a year in council tax, while an oligarch who owns a £15m apartment in One Hyde Park pays just £2,158.24.

While only modest in scope, additional revenue raised from higher bands could be reserved for cash-strapped local authorities to stimulate new housing development in their area. This would help ensure that the very wealthiest households paid a fairer proportion of tax, while helping to address the supply issues that price out the squeezed middle from buying a house in the first place.

As it stands, the Mayor of London already has powers to direct a proportion of council tax revenues to the agency responsible for developing affordable housing. Councils outside London have full discretion over their council tax spending, so it would be for government to persuade them that using additional revenues to develop new housing would be beneficial to local residents.

The Chancellor is also said to be looking at closing loopholes used by wealthy house buyers to avoid higher rates of stamp duty. This is another tweak to a flawed system, but it is encouraging that government is beginning to address our unfair housing taxation framework.