Tuesday, 31 January 2012

How Much Is That House Really Worth?

Taxing property is much in vogue as Government seeks to get some income in to pay down the enormous debts bequeathed to the Coalition by Labour. In the good times, you can tax income and consumption but the other asset that's taxable is property.

For many people, their property is their primary material possession - it's their only source of capital and is their potential pension pot. In the good times, when property prices were rising 10% per year, everyone wanted property and everyone wanted to be involved with property.

Along with cheap food, cheap money and cheap fuel, rising asset values died with the recession. Last year, house prices FELL by 1.3% and while those with mortgages have enjoyed the lower rates to pay down their debts, the truth is that when it comes to selling the house, it's a buyers market and people aren't getting what they had hoped or expected.

The value range of property is huge - in London, property can range from £120K to £10 million. Yet, the taxation structure for property just doesn't reflect that disparity. Indeed, the Council Tax bands first set in 1991 still exist which means that ALL properties over £320k pay the same so if your property is worth £325,000 or £3,250,000 you pay the same. That is obscene and grossly unfair.

The problem is, successive Labour and Conservative Governments were too scared of the consequences of revaluation of the bands to reflect changing house prices. The lowest band was set at a ridiculous £40k but no property in London is worth that.

It's time to be far more imaginative and realistic with property taxation. The answer might be more bands to reflect a greater disparity in values and changes in some areas to the size and range of bands to reflect higher values in London (and higher costs).

The inertia of successive Governments has done so much to undermine this vital component of local Government finance and emphasised and reinforced an already badly-distorted environment. It's time property taxation was given the time and attention it deserves.

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