Rightmove has warned the government that proposed changes to property taxation risk distorting the housing market and discouraging both first-time buyers and downsizers.

Mortgage Soup reported earlier this week how The Treasury was examining plans for a new levy on homes worth more than £500,000 as part of a potential overhaul of stamp duty and council tax and how Chancellor Rachel Reeves was also considering ending the capital gains tax (CGT) exemption on high-value homes in a move that could reshape the prime property market and weigh on housing transactions.

Now the UK’s largest property portal has said nearly a third of homes for sale in England, and almost 60% in London, would be hit by an annual levy if stamp duty were replaced with a new tax on properties worth more than £500,000. By contrast, only 8% of homes in the North East would be affected.

AFFORDABILITY FIRST

Johan Svanstrom (main picture, inset), Rightmove’s chief executive, said: “We would like any changes to current property taxes to put affordability and mobility first.

“It’s already hard for first-time buyers to save up their deposit to get onto the ladder, and many must fund a large stamp duty payment too.

“According to our data, around a third of all sales currently going through the legal system are for typical first-time buyer properties.

“Affordability is very stretched and so putting the tax burden onto the seller could be beneficial for first-time buyers, however the saving could be wiped out if sellers simply build some of the charge into a higher asking price.”

TWO-SYSTEM DISTORTIONS

Rightmove cautioned that moving the tax burden to sellers would create “two-system” distortions, penalising recent buyers who had already paid stamp duty but would face a fresh charge when they sold.

Svanstrom added: “If the responsibility for property taxes shifts onto the sellers’ side, the government will need to really think through how this transition will be phased in to avoid slowing down the mass market.

“Those who have recently paid stamp duty as a buyer and would face paying property tax as a seller in the future would clearly be at a disadvantage.”

At the top end of the market, just over 1% of agreed sales this year have been for homes above £1.5 million. In London, the figure rises to 5%.

MORE CONSIDERATION NEEDED

Svanstrom said a potential mansion tax risked further dampening activity: “There is no real incentive for someone in a large home to downsize to a smaller one unless they truly need to and can still afford the stamp duty bill.

“The current rumours would only seem to exacerbate this, as it may deter some at the top of the market from moving if they would then face a new annual tax.”

He added: “It’s encouraging that changes to stamp duty are being considered. Under this week’s rumoured proposals, there would appear to be some benefits to first-time buyers, but more consideration is needed for the mass market and downsizers.

“If reforms reduce mobility, they risk having the opposite effect and losing out in the long run.”