A controversial proposal to scrap council tax, stamp duty and the bedroom tax, and replace them with a flat-rate tax paid by landlords rather than tenants, has been proposed by a leading think tank.
The Institute for Public Policy Research (IPPR) believes a proportional property tax would help to use existing housing stock more efficiently, rebalance property values across the country and increase spending among lower-income families – but it will hit landlords hard.
Pulling Down the Ladder: The case for a proportional property tax says higher taxes levied on more expensive properties in London and the South East could serve to reduce house prices in those areas, while most households would pay lower tax bills.
The IPPR labels the UK’s current system of property taxation unfair and outdated and believes it has not done enough to address the enormous increase in housing wealth that is primarily concentrated in London and the South East and has disproportionately benefitted the old and already wealthy.
Introducing a proportional property tax paid by property owners not renters – a flat tax of 0.48% on the current value of residential property – would shift responsibility for payment from tenants to landlords, while a higher rate of 0.96% would be charged for second homes, empty homes, and homes owned by non-UK residents.
It explains: “In terms of the incidence of the tax, this analysis assumes that the full benefit of the reduction in council tax will be borne by tenants, and that a portion of the proportional property tax bill will be passed on to tenants – 66% for private renters, and 25% for social renters.
“In reality, in the long run we might expect the incidence of both of these changes to be largely borne by property owners, rather than by tenants.”