UK has highest level of property taxes in the developed world
Think tank finds we pay around £60 billion a year on property levies like Stamp Duty and Council Tax. Here’s how to cut your tax bill.
British people pay more property taxes than any other country in the developed world, according to a new report.
Think tank Policy Exchange found that we fork out around £60 billion a year on property levies like Council Tax, Business Rates, Stamp Duty Land Tax, Capital Gains Tax, Inheritance Tax and planning taxes like Section 106.
Of the 34 developed nations that form part of the Organisation for Economic Co-operation and Development (OECD), the UK raises the highest level of property taxes from its residents.
The charges are worth 4.1% of the UK’s economic output, which is more than double the average (1.8%) across the OECD member countries. In the USA property levies account for 3% of GDP, while countries like Germany only rake in 0.9% of GDP from property charges.
Rising house prices and falling levels of home ownership have led to calls for changes to property taxes like introducing a Mansion Tax.
However, the report doesn’t support this move as it claims property taxes don’t have an impact on housing bubbles.
Instead the report argues the availability of homes are more important and calls for 300,000 to be built every year between 2015 and 2020 to improve supply.
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Given we spend a fortune on property taxes, and reform of them seems unlikely for now, let's take a look at how you can cut your tax bill.
Council Tax
The current system of Council Tax in the UK is related to the value of a property. Rates are set by local authorities.
There are eight bands of values, ranging from A to H. The amount you pay depends on what band your property falls into.
You might be able to get a discount on Council Tax or even be exempt from paying anything depending on your situation. If you’re the only adult living in your home for example you’ll get a single person's discount which amounts to 25% off your bill.
Households where everyone is a full-time student don’t have to pay Council Tax at all.
Read more in How to slash your Council Tax bill.
Stamp Duty Land Tax
If you buy a property in the UK for more than £125,000 you will have to pay Stamp Duty Land Tax.
The Stamp Duty thresholds and rates are detailed in the table below:
|
Purchase price |
Stamp Duty rate |
|
£0- £125,000 |
0% |
|
£125,001-£250,000 |
1% |
|
£250,001-£500,000 |
3% |
|
£500,001-£1 million |
4% |
|
£1 million-£2 million |
5% |
|
£2 million plus (individuals) |
7% |
Source: HMRC
Many feel the current system is unfair as just £1 difference in purchase price could mean you pay thousands of pounds more in tax.
A property costing £250,000 for example will attract a 1% Stamp Duty charge, totalling £2,500. But pay just £1 more on the price of the property at £250,001 and you will have to pay a 3% levy on the whole amount, landing you with a bill for £7,500. That’s £5,000 extra for spending £1 more.
Unfortunately a lot of schemes to alleviate Stamp Duty charges have now closed.
But Stamp Duty relief is still available on Right to Buy transactions. This is where a public sector body such as a local housing authority sells a property at a discount. Stamp Duty will be calculated at the discounted price you pay rather than the market value.
Read more in How to beat Stamp Duty
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Capital Gains Tax
Capital Gains Tax (CGT) is a levy applied on the sale of assets including property.
Each year we get a tax-free allowance before having to pay CGT. The allowance for 2012/2013 is £10,600.
Basic rate taxpayers have to pay 18% on gains after this allowance is deducted while higher rate taxpayers must pay 28%.
When it comes to property you don’t have to pay CGT if the property sold is a primary residence. But if you sell an investment property, you will have to stump up.
For other ways to save on CGT read Ten ways to avoid Capital Gains Tax
Inheritance Tax
Inheritance Tax (IHT) is a tax which is due if a person’s estate is worth more than £325,000 (£650,000 for couples) when they die.
A charge of 40% is applied on anything above this threshold. The rate can be reduced to 36% if more than 10% of the estate is left to charity.
With the rise in property prices these thresholds apply to more people than ever before, but if you plan carefully you can avoid paying too much IHT on your estate.
For example you can gift your assets while you are still alive. However, you need to remain alive for seven years after the gifting for the exemption to apply.
Read more in How to cut your Inheritance Tax bill
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More on taxes:
Second home council tax discount to end in April
Rent A Room scheme: tax-free cash from your spare room
GIST: New online tool that lets you find out where your taxes go
HMRC warns import taxes could make your Christmas more costly
Comments
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If someone moves house, not only are they paying SDLT, but they are also paying a considerable amount of VAT to HMRC, including, but not limited to VAT on estate agent's, surveyor's and lawyer's fees, removal firm's fees, plus all the VAT on the new house purchases such as white goods, soft goods, carpets etc. We need a buoyant housing market to have a good economy. Instead of all these so-called "give-aways" like the recent mortgage incentives, the Government should make SDLT progressive so that one pays the tax only on each relevant band at the different levels and not, as mentioned above, at a flat rate on the entire purchase. It's not rocket science. The total tax income might even be the same as more people move around.
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Governments will tax anything they can - what really matters in these comparisons is the total tax take as a %age of GDP. Where we figure in that calculation I really don't know, and then again the picture is muddied even further by how much the Governments are borrowing rather than taxing their people. Borrowing does eventually have to be repaid and if we are really honest with one another it just shunts the problems into the future for another generation to pick up. The young should take notice!! Our Debt to GDP reached a low in 2002 before balls and brown went on a borrowing spree when the correct keysian approach would have been to pay down deby further. result the crash happened and we were borrowing heavily even before having to deal with the effects of the crash - Madness!!!! What is clear is that when the state takes too much economic development suffers. We need to keep taxes as low as possible and avoid the state taking on things that it has no role in. And the electorate should stop looking to the political parties to solve matters rather than taking personal responsibility for their own lives.
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Wait till the government puts CGT on one's main residence!... Perhaps deferred when changing properties with a charge on the property! You may ask why should people gain from property purchase? Really hard work and enterprise should be the goal!!!
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01 December 2013