An expert has said that tax changes being considered by Rachel Reeves would be the final nail in the coffin for property investment. The Treasury is believed to be examining options for property taxes ahead of the Budget – set to be presented by the Chancellor on November 26 – which, specialists suggest, could include a new 0.54% levy on homes sold for more than £500,000, the application of national insurance to rental income and a possible overhaul of council tax.
Charlie Newsome, Divisional Director at Rathbones, said: “Far from being ‘safe as houses’, the investment case for residential property has shifted dramatically. Slower price growth, higher borrowing costs and increasing regulation have combined to erode the appeal of property as an asset class. A new property tax could be the last nail in the coffin for property’s status as a viable investment and cause potentially tens of thousands of people planning for retirement to rethink their strategy.”
He added: “A tax that scales with property values risks deepening the housing crisis.
“It could even create the perverse outcome where less well-off homeowners in deprived urban areas where house prices are high are penalised more than wealthy homeowners in rural areas, where values are lower.
“While second and holiday homes may still hold lifestyle value, their investment appeal has weakened significantly.
“By contrast, those seeking dependable long-term returns may be better served by a more balanced approach that includes equity markets, which have consistently outperformed property in recent years.”
Wealth managing firm Rathbones said it has seen a “marked increase” in clients with property portfolios “expressing concern and seeking guidance on how to react to changing legislation”.
This follows “frustration” over recent taxation changes, including reduced stamp duty thresholds and rate increases introduced in April, the firm added.
On Wednesday, the Chief Secretary to the Treasury, James Murray, said the Government would not “respond to speculation” ahead of the Budget and hit out at the previous Conservative administration’s management of the economy.
He said: “Over 14 years, the last government made wrong choices time and again.
“Their many prime ministers and their many chancellors all embrace the cycle of austerity, debt and decline. We will never repeat that.”
He added: “The Budget the Chancellor delivers in November will be carefully considered and designed to get the balance right between making working people better off, raising enough money to fund our public services and to get the country moving once again, through investment and growth.”