How Will the Labour Party’s Garden Tax Impact the Market?

How Will the Labour Party’s Garden Tax Impact the Market?

Summary:

With the Labour Party’s proposed plans for a ‘garden tax’, Kevin Ross, director at Brown Turner Ross, explores how this would impact the property market.

The tax overhaul plans would see Council Tax replaced with a progressive system where the landowner would be liable to pay instead of the occupier. A new report titled ‘Land for the Many’ outlines several recommendations for the party to implement “radical but practical changes in the way land in the UK is used and governed.”

The Labour Party looks set to identify key housing market reforms as part of their policy for the next election. The core purpose of their plans is to make it more affordable for people to enter the market. It should also ease the burden many leasehold owners are encumbered with from high ground rents and higher prices to buy the freehold. The report has been dubbed the ‘garden tax’ and will aim to “encourage more efficient use of the housing stock” and “discourage the use of homes as financial assets.”

The annual tax bill would be based on the property’s current value and would target larger homes with gardens. This is something that would mostly like significantly affect families, widowers and pensioners. As the large tax bill may be off-putting for home buyers, the policy could trap as many families as the current leasehold system. The plans would also see significantly higher rates for home owners living outside the UK for tax purposes, those who own a second home, and anyone who has an empty home for more than two years.

The ‘Land for the Many’ report also tackles the issues of thousands of homeowners being unable to sell their homes due to excessive ground rents and high prices to obtain the freehold in the leasehold market. The report suggests that if you own a house or flat but not the plot of land, then you should have the right to purchase the land for no more than 1% of the property’s value. This approach is similar to a recent proposal from the Conservatives who announced that all newly built houses would only be sold on a freehold basis.

As for the commercial industry, the party may look to replace business rates with a land value tax. This would be based on the rental value of local commercial land and aim to reduce the risk for investors. However, there’s no clear indication whether this would add to the current corporation tax system or replace it.

In order for these plans to work effectively and to avoid negative impact on the property market, it’s clear that a sensible implementation and simplifying of the system would be necessary.

Written by
Kevin Ross