The Chancellor is said to have asked Treasury officials to look at a new property tax on the sale of homes worth more than £500,000 as part of a possible overhaul of stamp duty and council tax.
This could mean that, although the details are yet to be confirmed, families looking to sell inherited homes worth more than £500,000 could potentially end up paying both inheritance tax (IHT) and an annual property tax.
Laith Khalaf, head of investment analysis at AJ Bell, said: “In the case of a family inheriting a property that would presumably not exempt them from any IHT that might be due, however it seems likely they would only then pay the annual property tax if they continued to own the property, rather than simply selling it and distributing the cash amongst the beneficiaries.”
He suggested an average rate of 0.44 per cent would replace council tax income, adding the national rate could be 0.54 per cent for homes between £500,000 and £1m, and 0.81 per cent on any value above.
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He said: “Tax reform would be a laudable aim for Reeves to pursue, but it may also prove challenging while raising tax revenues at the same time, both politically and financially.
IHT is charged at a rate of 40 per cent on assets above the £325,000 nil-rate band, with an additional £175,000 allowance if the main residence is passed to direct descendants.
Heather Powell, a partner at Blick Rothenberg, added: “The imposition of a selling tax, at a rate still to be set by the Government, is a massive disincentive for anyone looking to downsize, especially if they are managing their estate to ensure that they will not have a liability to IHT.
Experts have warned that as news of a new property tax is “pure speculation” at the moment, anyone in the process of buying or selling home shouldn’t let it impact their current plans.
“Fortunately, there’s a decent chance that they wouldn’t have to pay IHT at all, because only a small fraction of people do.
“We know that inheritance tax is widely hated though, so there’s every chance that another tax payable on the estate of someone who passed away might feel like it would add insult to injury.”
First time buyers have to pay it for a property valued at £300,000 whilst it is £125,000 for everyone else. Second home owners have to pay an additional 5 per cent.
“An arbitrary cut-off of £500,000 also risks creating distortions in the property market like those we saw under the old slab stamp duty system.”
Richard Donnell, executive director at Zoopla, said: “There are strong economic reasons for reform but there are political risks and the benefits of change can take time to become apparent.
“Reforms to council tax alongside a new tax on homes over £500,000 to replace stamp duty would replace the lost revenue by spreading the cost across more households. This would hit homeowners across southern England which has most higher value homes.”
The Treasury has been contacted for comment.
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