As the Autumn budget draws ever closer, there have been many rumours going around surrounding the potential reforms the government may implement in order to ease concerns about the country’s perceived weakening economy. 

The Chancellor held a pre-Budget conference to explain and provide context to the incoming reforms, in which she mentioned a current national debt of £2.6 trillion, and reports have suggested that there is a spending gap estimated in the region of £20-40 billion that the Chancellor intends to reduce. 

Based on this, it is widely speculated that increased taxation will be implemented to reduce this gap, as well as several tax reforms being introduced, particularly in the property sector. 

In this article, we will consider some of the rumoured reforms in the budget and how those will affect property ownership, as well as any potential impacts on selling and buying a home. 

Will there be a new land tax?

One rumoured reform would be to replace council tax with one of two new ‘land taxes’.  There are several rumoured ways in which this would operate, however the main concept involves replacing the current system with a new tax local to the property that is calculated relative to the value of the property at a rate that has been set by the local authority. During the pre-Budget speech, Rachel Reeves continuously referred to reforms and changing the system.

This would attempt to update the current banding system, which is based on property values from the 1990’s and it is perceived that this would lead to an overall fairer system, as under the current banding structure, some property owners are paying the same rate as those who own properties of a much higher value. 

Although a complete switch from the current system from the day of the budget would be a significant, if not ambitious, undertaking and may not be feasible. There have also been concerns regarding the effect that these may have on property owners who own many assets but may not have as much liquid cash. To assuage these concerns, it is possible that the government could instead announce a plan of gradual changes to achieve the same result.

A more likely solution would be a re-structuring of the current banding system to align with the current property market, given the points mentioned above and the uncertainty as to whether the rumoured system would yield any more revenue than the current system.

Will Capital Gains Tax be reformed?

Another reform that has been speculated relates to Capital Gains Tax.  Under the current system, the Seller of a property will benefit from a 100% relief from Capital Gains Tax when selling their main private residence.  The rumoured reforms would remove this relief, meaning that a seller would be subject to paying 24% of the value of any increase in the value of their property. Throughout the pre-Budget speech, Rachel Reeves used the words “hard choices” and “honesty”, indicating some form of tax increase was very likely.

Whilst this is a possible reform that could be implemented, much of the speculation has suggested that this would only apply to properties over a certain threshold.  Implementing a threshold would prevent the possible effect this reform would have of putting off property developers and encourage the development of lower-value properties that may be suitable for first-time buyers, a group that the Chancellor mentioned to be focussing on in the pre-budget speech. Rachel has also mentioned acting “faster on planning” which potentially indicates an easing on planning rules and regulations or the potential for new reliefs or grants to be implemented into the current system.

Will there be changes to sales tax when selling a property?

Speculations are also mounting about a potential reform from the current property taxation system, being the current buyer-paid Stamp Duty Land Tax to a seller-paid sales tax. In many countries, such as the United States of America, property transfer taxes are typically paid by the seller. It is possible, given Rachel Reeves’ comments on encouraging young people to achieve their dream of home ownership, that this system may be implemented, which would see first-time buyers avoid the additional price tag of SDLT on their first purchase.

This system is, however, rarely applied abroad and while it would benefit first time buyers it may lead to a market of more reluctant sellers or increased property prices where the sellers would wish to mitigate any resulting profit loss. There is also the possibility where if no exceptions are granted, sellers who previously paid SDLT may end up also paying the new sales tax and in effect suffering from double taxation. This could be resolved by some form of relief being put in place for certain sellers e.g. those who purchased the property within a set period, to encourage market movement.

This speculated system could also seriously affect sellers looking to downsize before retirement or those looking to sell and purchase a more expensive property. In both cases, the sellers may then reconsider their intentions as the option to follow through with their transaction may no longer be financially viable or as lucrative as before.

What new schemes could help first-time buyers?

Amid rising property prices, there are also speculations that Rachel Reeves may unveil a new scheme aimed at assisting fist-time buyers. This could be a revival of the Help to Buy scheme, a deposit support scheme or a new tax relief aimed at new buyers.

There have also been suggestions that zone-based schemes and tax reliefs may be put in place to encourage growth in specific areas and encourage migration from overburdened counties to more sparse communities, and incentives being in place similar to those currently offered in various Mediterranean nations and in Ireland, where you can relocate to a specific place and receive various benefits and grants for doing so.

Will Green Taxes be introduced?

There have also been discussions regarding the introduction of new green taxes and/or fines associated with property energy efficiencies. A possible new tax could be based on the energy performance certificate ratings for tenanted properties, where the landlord would be obligated to pay an additional tax based on how energy efficient their property is. This may radically affect a landlord’s decision on whether to rent out a property or, if no longer cost-efficient, sell the same to invest the sale proceeds elsewhere. It could also encourage landlords to refurbish and improve the energy performance ratings of their properties to reduce the tax amount payable. Alternatively, it could lead to landlords simply further raising the rent on properties to ensure that they receive the same total rent profit.

Some have also speculated that landlords and trusts may be subject to new regulations placing further restrictions to encourage more market movement and sales instead of renting.

Overall, the above provisions are only speculations at this stage, as it is not yet clear what the Chancellor and Labour government intend to do in the Autumn Budget. No concrete leaks have been confirmed but one thing that is clear is that the current government will be looking to take steps to minimise the current spending deficit and make serious changes in the way properties are taxed. These changes will be outlined at the Budget announcement on 26 November, and will certainly be watched with great intrigue by professionals across a number of sectors.

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