Thinktank report calls for abolition of housing tax in favor of property tax
The IPPR think tank described the housing tax, which has existed for 30 years, as “unfair and obsolete”. He urges the government to get rid of it, along with the stamp duty, and replace both with a proportional property tax (PPT)
The IPPR said the housing tax is based on outdated property valuations, which means the amount paid on “the country’s most expensive homes is nowhere near their rising value.”
The housing tax helps municipalities pay for the services they provide, such as road maintenance and garbage disposal. Meanwhile, the British pay a stamp duty if they buy a property above a certain price.
Under the current system, households with the lowest income by income decile pay about twice as much housing tax as the highest, as a proportion of their income.
The IPPR estimates that a property tax, set at a flat rate of 0.5%, designed to increase the same amount of tax as the housing tax and stamp duty combined could mean that three-quarters of households in England pay less than they currently do.
âThe housing tax is unfair and outdated. It’s based on 1991 real estate appraisals and poorer households pay a higher percentage of their property’s value in taxes, âsaid George Dibb, director of the Center for Economic Justice at IPPR.
âIt is time to replace it with something fairer: a proportional property tax would be fairer, all households paying the same rate and would make it possible to fight against regional inequalities in real estate wealth. To increase the same amount of income as the housing tax and stamp duty, a proportional property tax would mean lower taxes for 75% of households.
Read more: UK house prices fall as housing market cools
The IPPR said the PPT would more accurately reflect the variation in house prices across England than the municipal tax system, with the highest taxes being levied proportionally on those with the most property wealth.
This would lower the tax bill for most households and it could stimulate the economy – poorer households benefiting from the tax cut are likely to spend more of their additional disposable income.
Existing housing could be used more efficiently, thereby reducing the number of empty or underutilized houses in high demand areas of the country.
The IPPR is optimistic that the TPP would also encourage a rebalancing of real estate values ââacross the country, with prices likely to decline in the long run in expensive areas relative to those elsewhere.
The challenges that could arise, according to the report, include practical issues such as putting in place a new mechanism to redistribute the increased income from areas with high property values, to areas where lower values ââwill yield less. ‘taxes only under municipal tax.
The report also looked at ways to mitigate the immediate impact on high-value homeowners, who might otherwise see their tax bills increase overnight.
In July, MPs said the property values ââof municipal taxes in England had needed reassessment “for a long time”, adding that the tax had become “increasingly regressive” to the detriment of the most disadvantaged areas.