Rachel Reeves has landlords and homeowners in her sights

Now that Chancellor Rachel Reeves has rejected the idea of increasing personal taxation in the Budget her gaze has turned to numerous other taxes to raise the required £30bn in revenue. The Treasury has named it a smorgasbord approach while more cutting critics have described it as “a dog’s dinner” but whatever it is called it spells pain for the housing sector.

The forecast is that she is likely to target homeowners and landlords for revenue raising which, at this cycle in the market, is unfortunate to say the least.

For homeowners, the speculation is that the Chancellor could levy capital gains tax (CGT) on more expensive homes. At present CGT is only chargeable on second homes but there is a proposal to apply it to first homes worth more than £1.5m, charging 24 per cent for higher rate taxpayers on any gain made from the purchase price. Homeowners who bought a property 40 years ago will have accrued enormous price increases just through inflation and would face bills of hundreds of thousands of pounds at a time in their life when they are likely to be asset rich but cash poor. Most homeowners will sit tight and wait for another government to come along rather than sell up and have to pay a fortune of their equity in taxes.

The other proposal is the so-called mansion tax to be charged on properties valued at over £2m which would trigger an annual charge of 1 per cent on the amount above the threshold. Once again this would hit the elderly the hardest who would be unlikely to be able to afford to pay this charge and could be forced to sell up. This policy would be impractical to implement, face appeals over valuations, and result in delays in anyone paying.

For landlords and property investors there is a proposal to introduce National Insurance contributions (NICs) on rental income. Currently landlords pay income tax but not NICs on their rental income so this would cost a substantial amount, with a charge of 8 per cent on income up to £50,270 and 2 per cent thereafter. Given that the majority of landlords in the UK are owners of only a few properties and therefore not awash with cash the result would be many more selling up rather than continue with falling profits. This would cause reduced investment in the sector, the prospect of a fall in the number of landlords, and higher rents for tenants.

Landlords, who are providing a vital service to the community, will face increased costs at a time when they can least afford it. If this results in them leaving the sector, then there will be no benefits to this policy at all. The tax take will be minimal, and tenants will face delays in finding appropriate homes and have to pay higher rents. At a time when much-needed property investment is already being put on hold due to concern over future returns this is not the time to make the market more difficult for landlords. Rather than increasing taxes for homeowners and landlords the government should be working with the sector to make the housing market grow. Housing needs support not higher taxes, and these proposals will reduce growth and slow the market down.