Replacing stamp duty and council tax with a flat-rate proportional property tax (PPT) would result in 75% of households in the UK being better off, according to a new report.
Research from the left-wing think-tank Compass suggests replacing the “unfair” current taxes with a flat rate annual tax charged at 0.48% of a property’s value would result in 75% of households being better off than they are under the present system.
At the same time, the PPT would yield enough revenue to fully replace council tax, stamp duty and the bedroom tax, with a net increase in annual HMT revenue of £5.6 billion annually, according to the report.
The cost would be “borne almost entirely by the better off”, the report says, helping to tackle wealth and regional inequality. While the authors acknowledge property owners in London and the south east of England would be disproportionately impacted by the move, they suggest an annual cap of £1200 on price increases for primary residences.
A deferral scheme allowing some of the tax to be deferred until death could be put in place for those who are asset-rich but cash-poor.
The tax would be paid by the property owner rather than the occupier, with “adequate protections” to prevent costs being passed onto renters. Exemptions on undeveloped plots and second homes should be scrapped and made subject to higher rates of tax, the report suggests, to encourage the use of homes as primary residences.
“This change would also boost economic growth by incentivising more efficient use of the housing stock and rebalancing investment and house prices”, the report claims. “Higher additional rates of tax for second properties and overseas buyers would help disincentivise the use of homes as investment property, making homes more affordable for ordinary people.”
A “significant” cross-party group of MPs support replacing council tax and stamp duty with a PPT, the report suggests. Similar schemes are already in place in other OECD countries including Ireland, Sweden and New Zealand.
Introduction of such a scheme would take around two to three years to implement, Compass estimates, and require primary legislation to abolish council tax and stamp duty and establish the new framework.
It would also require up-to-date property valuations but, as the authors note, “this is entirely possible” thanks to the information already collected by property portals such as Rightmove and Zoopla.
“It is widely agreed that both council tax and residential stamp duty are unfair and in need of overhaul”, the authors say.
The proposals are included in the Compass report Ending business as usual: policy options for a progressive government.
