Bold Budget move could fix UK’S broken property market

David Alexander on the need for radical tax changes

Chancellor Philip Hammond’s Budget scheduled for the end of this month will provide an opportunity for the Westminster government to look at the key issue of housing in the UK.

If Hammond is bold, then he may be able to both start addressing the problems while ensuring that those citizens who own their own properties do not see themselves as simply tax targets.

The first area to address is the issue of social housing, which requires sustained large-scale investment over the next decade to rebalance the housing market.

Social housing is now the smallest of the three main housing stocks at 17 per cent, behind the private rented sector, 20 per cent, and 63 per cent of mortgaged or owned properties.

The government has already announced new money for social housing, but this spending needs to continue until at least 2030 both to build new homes and maintain the existing but ageing housing stock.

The buy-to-let (BTL) market has already been targeted with financial and regulatory changes which have resulted in many landlords withdrawing.

However, it is vital that BTL investors are not discouraged as the sector accounts for 4.7 million homes, not easily be replaced by social housing or by individuals buying homes.

Therefore, policies which allow landlords some leeway in maintaining their investments, national and local governments to work together and ensure high standards, tenants to be treated fairly, and landlords encouraged to grow the sector should all be pursued.

Finally, the propertyowning sector accounts for almost two thirds of all housing stock.

Homeowners have felt under fire for a long time, as governments increasingly see them as cash cows.

Property is easily targeted and taxed both when moving house and through Inheritance Tax (IHT). But is this fair?

For too many years IHT has been an easy tax on the “rich”, but although there were only 16,119 £1 million-plus homes sold in 2017, there are now an estimated 770,000 in the UK.

The truth is that most of the individuals who are now hit with IHT may have lived in the same home for 30 or 40 years and have found themselves accidental millionaires in a relatively modest home which has soared in value.

The Chancellor could win himself friends by excluding properties under £1m from IHT.

Although there is a phased nil-rate band policy at present, this is only rising by £25,000 per year and looks like tinkering rather than dealing with the main issue – the taxation of people’s homes after death.

By establishing a threshold of £1m the Chancellor would exclude most homeowners from IHT at a stroke.

Then, by taxing assets excluding the main residence, a fairer, more equitable system would emerge, which would allow families to pass on wealth rather than punitively tax them on value which has built up over decades.

In this way, many families who have accrued money through owning their home would not be unduly financially punished for their actions.

This, I believe, would not only be very popular it would also be just and right.