Speculation that the government could lower the threshold for a proposed high-value council tax from £2m to £1.5m is causing concern among homeowners, buyers and valuers, according to Knight Frank.
Reports emerged at the weekend that ministers could reduce the proposed threshold for the high-value council tax (HVCT), with further speculation that the government may also consider changes to capital gains tax.
Tom Bill, head of UK residential research at Knight Frank, said the latest rumours represented a significant change after months in which uncertainty over mortgage rates had been the principal concern for the housing market.
The speculation comes against a more difficult fiscal backdrop, with higher government borrowing costs and renewed concerns about inflation as the conflict in the Middle East threatens to put further pressure on prices.
Bill said it was unclear whether the latest reports originated with the Treasury.
Writing in an analysis accompanying the latest episode of Knight Frank’s Housing Unpacked podcast, he cited comments from James Nation, a former special adviser to Rishi Sunak at Number 11 Downing Street.
According to Nation, Chancellor John Healey and Andy Burnham would generally prefer to avoid speculation of this kind. Bill also suggested that the recent leak of a 50-page policy document prepared for former prime minister Keir Starmer may have contributed to the rumours.
Bill said the prospect of a £1.5m starting point for the HVCT would be particularly significant for parts of London and south-east England.
If the threshold were lowered before the proposed tax had even been introduced, homeowners whose properties could reach the threshold in the coming years could begin to factor potential tax liabilities into their decisions, he said.
The introduction of a threshold could also affect negotiations between buyers and sellers, with properties potentially being priced below the relevant band to avoid triggering higher charges.
Bill said this could create distortions similar to those associated with the former stamp duty slab system, where relatively small differences in property prices could result in significantly different tax bills.
The measure could also have different effects on different types of homeowners. While higher charges might discourage some homeowners from moving to larger properties, Bill said they could encourage downsizers to sell in an effort to avoid higher liabilities.
He warned that the policy could fuel concerns about older, asset-rich homeowners being unable to afford the costs associated with remaining in their homes.
A lower threshold would also create difficulties for property valuers, according to Knight Frank.
The firm estimates that around 73,600 properties are currently worth between £1.8m and £2.2m, creating a significant valuation grey area around a potential £2m threshold.
If the lower threshold were set at £1.5m, Knight Frank estimates that the number of properties within the equivalent valuation range would rise to approximately 222,800.
That would more than triple the number of properties potentially caught in the valuation uncertainty surrounding the tax.
The debate has also highlighted the substantial differences in property values between London and other parts of England and Wales.
Using the Nationally Described Space Standards minimum floor area of 538 sq ft (50 sq m) for a one-bedroom, two-person home, Knight Frank calculated how much residential floorspace £1.5m could purchase in different local authorities.
In Kensington and Chelsea, where Knight Frank puts average values at approximately £1,168 per sq ft, £1.5m would buy the equivalent of around 2.2 standard one-bedroom flats.
In Hartlepool, by contrast, the same amount could theoretically buy around 20 flats based on local average values.
The disparity becomes even greater when comparing prime central London with lower-value parts of the country. At a price of £4,000 per sq ft for a one-bedroom property in prime central London, the equivalent sum would buy roughly 29 times as much floorspace in Hartlepool, according to the analysis.
The figures underline the regional impact of a tax based on property values, with the proposed measure likely to have a markedly different effect depending on where a homeowner lives.
For now, the government has not confirmed whether the threshold for the proposed high-value council tax will be reduced.
But Bill said the latest speculation was likely to be watched particularly closely in areas where large numbers of properties sit close to the potential threshold.
