DJ Alexander in Scotland has urged incoming prime minister Andy Burnham to avoid using housing and property wealth to fund new spending commitments, warning that proposed tax reforms could damage the housing market.
The estate agency said ministers should be cautious about measures reportedly under consideration, including changes to capital gains tax, inheritance tax, wealth taxes and property levies.
The firm said proposals such as extending taxes on higher-value homes, introducing National Insurance on landlords’ rental income and broadening taxes on property assets risk undermining investment and reducing confidence across the housing market.
David Alexander, the chief executive officer of DJ Alexander Scotland, commented: “We cannot be sure what Mr Burnham’s premiership will be like as he has offered little detail on his policies. But he has expressed a desire to introduce a number of policies which will require funding without changing the existing restrictions on raising VAT, NI or income tax. This leaves him with few options, and he seems to be looking at assets, homes, and wealth as possible sources of additional revenue.”
“While it is unlikely that all these policies will be implemented any one of them has the potential to cause enormous damage to the property market. The mansion tax and CGT changes, for example, will bring in little revenue but could cause enormous distress to elderly homeowners who may be asset rich but cash poor and would face an annual levy simply because they have lived in their home for many years and its value has increased. The rate of inflation over the last 40 years has gone up by 207.3% and obviously house price inflation has been higher at just over 800%.”
He continued: “Introducing a wealth tax and changing IHT to a levy to fund a national care service may sound attractive to politicians but these policies rarely bring in as much as expected and tend to hit middle earners and savers rather than the rich who have advisers to ensure they don’t pay these taxes. The anticipated revenues from all these policies are always based on the assumption that people don’t change their behaviour and choices when taxes rise. The reality is that the really rich can afford to live and work anywhere and will change aspects of their life if they receive advice to do so. For the majority this isn’t an option and they end up being taxed on their hard work and savings and the revenue raised is millions below the forecast.”
Introducing national insurance on landlords’ income would also potentially reduce the volume of homes available to rent as well as result in higher rents for tenants, according to Alexander.
He added: “The issue is that the homeowner, or someone with assets is often seen as an easy target for taxation. They cannot hide their home, so it is easy to identify and tax. The problem is that such policies always target aspiration, thrift, hard work, and saving. These are all attributes which society encourages and yet too often they are the first place that politicians look to increase revenue. We need to grow the housing market, encourage people to save and invest, and to provide more homes for the population and not tax existing properties and assets.”
