Homeowners should pay an annual levy worth 0.5 per cent of the value of their home instead of council tax, a Labour-leaning think tank has suggested.
The Institute for Public Policy Research called for a ‘proportional property tax’ to tackle regional inequality – saying it was unfair that those who have benefited from soaring house prices should pay so little compared to the value of their homes.
Under their system, someone living in a house worth £1million would pay £5,000 – meaning the policy could be seen as a so-called ‘mansion tax’.
As well as replacing council tax, the new levy would also replace the stamp duty which people pay when they move house.
The think tank said the move would lead to a fall in house prices of 3 per cent in London and other well-off places in the south.
This five-bedroom house in France Lynch near Stroud in Gloucetershire is on the market for £2million with Whitaker Seager. The idea for homeowners to pay an annual levy of 0.5 per cent of their home’s value would result in a £10,000 payment here. The property is within the Chalford Parish of Stroud District Council in band G, giving it a council tax rate of £3,277.74
This four-bedroom detached house is for sale near Doncaster in South Yorkshire for £1million with Portfield Garrard & Wright. Under the system proposed by the Institute for Public Policy Research, someone living in this house would pay a £5,000 levy. The property comes under tax band H in the Doncaster Council area, giving it an annual council tax bill of £3,470.42
This three-bedroom end of terrace in Guildford, Surrey, is up for £500,000 with Seymours. The levy here would be £2,500. The property is in tax band E within Guildford Borough Council, giving it a council tax bill of £2,464.57
This four-bedroom house is on with Jump Pad in Newton-Le-Willows, Merseyside, for £300,000. The levy would be £1,500. The property is in council tax band D within the St Helens Council area, giving it a council tax rate of £1,578.78
Shreya Nanda, IPPR economist, said: ‘The housing market has been almost entirely responsible for growing wealth inequality since the 1970s.
‘Over this period, while consumer prices have increased by a factor of 11, house prices have increased a staggering 60 times.
‘These gains should have been shared fairly across society, but instead they were captured by older, wealthier homeowners and landlords.
‘Those who did not own property during the long house price boom have been locked out, and too many face steep rents, cramped flats, and eye-watering mortgages.
‘A proportional property tax would instead ensure that these gains were shared more fairly across society.’
The IPPR said council tax was unfair because it is based on outdated property valuations, which means the amount paid on the nation’s most expensive homes has lagged far behind their soaring values.
If set at a flat rate designed to raise the same amount of tax as council tax and stamp duty combined, a proportional property tax of around 0.5 per cent could mean three quarters of households in England paying less than now.
Making the change would help tackle regional inequalities, with people living in areas with lower house prices likely to gain, compared to those in regions such as London and the South East where prices are highest.
The IPPR said it would also be fairer, with the best off paying more compared to the current system – under which the lowest earning households (by income decile) pay around twice as much council tax as the highest, as a proportion of their income.
The think tank acknowledged that there would be practical issues to address, including a new mechanism for redistributing the increased revenue from areas where property values are high, to areas where lower values will yield less tax than under council tax.
It calculated that a PPT would lead to the biggest house price falls – up to 3 per cent – in areas of London and the East and South East, while the 10 most affected areas, primarily in the North East and North West, could see rises of up to 11 to 15 per cent.
Last night a Treasury source said there were no plan to introduce such a property tax in the UK.