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UK Is Considering New Property Tax
2021-01-26

According to the Daily Mail, the UK Treasury Department is considering introducing a new national property tax to replace the current Council Tax and Stamp Duty Land Tax.

  1. What is the current Council Tax?

In the UK, all real estate has to pay municipal taxes to the local government for local public service facilities, such as local libraries, schools, transportation, garbage collection, and sanitation. Under normal circumstances, the municipal property tax in the UK is between £900-3000 per year.

Under the following circumstances, homeowners can apply for municipal property tax relief:

  • If all tenants are full-time students, they can apply to the government for exemption from municipal property tax;
  • Municipal property tax for most rental housing is borne by the tenant;
  • If the house is not rented out, but it is not the main residence of the owner, the owner can apply for property tax exemption;
  • A property where only one adult lives can apply for a 25% exemption of municipal property tax;
  • Two or more houseswhere only one of the occupants is an adult can enjoy a 50% discount on the value of the house.

This reduction is based on the policy of the city hall in the area where the homeowner is located. If the conditions are met, the maximum reduction can be up to 100%.

  1. What is the current SDLT?

When buying real estate in the UK, stamp duty (SDLT) must be paid to the Inland Revenue Department so the transaction can be finally approved by the government. According to the latest tax rate announced by the British Ministry of Finance on March 21, 2012, the specific standards for stamp duty are as follows:

England or Northern Ireland (until 31 March)

Property Value (£)

SDLT Rate

Additional Property Rate

Up to £500,000

0%

3%

£500,001 – £925,000

5%

8%

£925,001 – £1,500,000

10%

13%

£1,500,001 +

12%

15%

In July 2020, in order to promote consumer demand during the pandemic, the Ministry of Finance raised the stamp duty threshold from 125,000 pounds to 500,000 pounds. This policy will be implemented until March 31, 2021.

Anyone who already owns a property (even if the property is not in the UK) will need to pay an additional 3% stamp duty when purchasing another property over £40,000. Simply put, if the buyer wants to buy another residential property besides the one he currently lives in, then no matter whether this (that is, the second) property is to be rented out, or as his own holiday home, a higher rate of stamp duty should be applied.

In addition, there are some details worth noting——

1) For those who temporarily own two properties due to moving (have purchased the second property, but the first property has not been sold in time), the time period has been extended from the original 18 months to 36 months. In other words, in the three years from the purchase of the second property, as long as the original property can be sold, the tax can be refunded (not directly exempted).

2) If the purchased real estate is used to "replace" one's main residence, no matter how many real estate the person has, the purchase of real estate used to "replace" one's main residence does not need to bear the additional stamp duty rate (within 36 months). But if someone already has a real estate for rent and then buys a real estate "as" the main residence, then they need to bear additional stamp duty.

3) For the property inherited recently (within 36 months), and the shares held are not higher than 50%, the higher stamp duty rate will not be credited.

4) Couples who live apart will be regarded as "separate entities", so the number of properties and stamp duty rates will be calculated separately.

5) Buyers need to formally declare whether they hold additional real estate when filling out the SDLT document.

3. How will the property tax affect homeowners?

1) The imposition of new property tax is not fair to the southern part of the UK where housing prices are relatively high, especially those elderly people who have lived in high-value houses for a long time. Once the new policy is introduced, it may lead to bankruptcy of many elderly people who do not have much cash. Indeed, since the real estate tax is levied in proportion to the latest market value of the house, some elderly people who have lived in the house all their lives will not be able to pay the sudden high real estate tax after the house has appreciated. In particular, housing prices have risen rapidly, and in the South East of England and Greater London, where housing prices are relatively high, the levy of property tax is undoubtedly a considerable expense for every homeowner, and the amount they pay is more than that of northern England. many.

2) Young people's willingness to buy houses in big cities may also decline. During the pandemic, the real estate industry has been driving the recovery of the British economy, and the collection of property taxes may affect people's desire to buy and move in areas with high housing prices.

3) The collection of property tax will benefit the northern part of England where housing prices are relatively low. According to consulting firm WPI Economics, if the property tax rate is set at 0.48% of the value of the house, a family with a £150,000 house will have to pay £720 a year, and a family with a £1 million house must pay a tax of £4,800 a year. Compared with the average Council Tax in England in 2020/21 of £1,818, the levy of property tax is obviously more friendly to people living in cheaper houses.

At present, the British government's Council Tax is based on the 1991 housing price standard. Due to the relatively outdated rules, the average municipal tax rate of certain low- and medium-value properties is even higher than that of luxury homes, and there are differences between different regions. Very big.

In addition, the one-time stamp duty collected when buying a house is calculated in a progressive system. Therefore, when the house price is close to a certain stepwise progressive amount, the real estate buyer will try to lower the price below the next high tax rate. It often makes it difficult to reach a transaction for some real estate priced at the threshold of the tax file.