Category Archives: Council tax

Time to reform London’s outdated system of property taxation

On a fading winter’s evening in Hyde Park, tourist numbers remain high, giddy with little green Harrods bags, joggers brave the dry icy air and charity walkers populate the banks of the Serpentine lake. On the southern perimeter of the park, the flats of One Hyde Park are exposed behind a set of wiry leafless trees. There is unsurprisingly no sign of human occupation, all lights switched off behind those imposing vertical louvres.

One Hyde Park has admittedly taken a fair amount of bludgeoning in the past when it comes to being scrutinised by those angered by the buy-to-leave movement in recent years by asset-rich property speculators. Research suggests that those with the financial clout to be able to enter London’s top tier of prime real estate tend to not to even bother to rent such flats out, given the relative flat-lining of high-end rents for the perceived amount of hassle involved in letting such high value properties. Even the most unintrusive Rightmove search yields results including a longstanding ad for 4-bedroom flat in One Hyde Park priced at £22, 500 a week.

IMG_0185.JPG
While such developments may be deemed deplorable with regard to the relative scarcity of affordable housing, concentration must also focus on how best to maximise gain from these properties in cash-strapped councils.

The failure of Ed Miliband’s Mansion Tax to get off the ground need not be a reason to avoid the issue of changing how property is taxed in the UK. The issue of land tax is perhaps a separate issue also worthy of review however the fact remains that council tax lags far behind the reality of property values today.

For example, all council tax in the UK is banded based on market values from 1991. Back then average house prices in the UK were around £54,000. Now average house prices are around £200,000 and over £530,000 in London. There is also huge disparity on properties across the UK where values do not correspond to taxation levels. A typical band D property in the borough of Westminster has a tax bill of £674 a year whereas a band D property in Hartlepool for example has a rate of £1,696. Even in Kensington & Chelsea, the highest band (H) which provides for homes over the £320,000 mark (on 1991 values) generates an annual council tax bill of £2,124.66. This seems unlikely to deter incoming buyers in a borough where average purchase prices are currently £700,000.

One Hyde Park remains a prominent icon of the non-Dom ‘buy to leave’ movement. It is one of many architectural manifestations of the use of London property as safe houses for idle international capital. If we are treating developments (which clearly we shouldn’t be) such as these as purely financial instruments, then why not apply sensible tax measures to such properties?

A sensible proposal would be to introduce a wider range of council tax with a new high end band specifically targeted at recently purchased luxury apartments. An investigation by the Observer in recent years indicated that only 9 out of 62 properties at One Hyde Park were registered for council tax. In addition, 25 properties were  owned by companies listed in offshore tax havens in the British Virgin Islands. In order to avoid unfair taxation on those who have lived in areas of high property value for many years the taxation would be on recent purchase price, not the antiquated levels of 1991. Banding might occur on values of £2 million, £5million and £10million for example with more dramatic rises in taxation than is presently the case.

This is a fairly pain-free reform which would be relatively inexpensive to enforce and would enable a valuable source of income in the boroughs where issues of maintenance and lack of human resources are most acute. While such reforms to London’s property market are unlikely to deter the proliferation of luxury high-rise residential towers in the foreseeable future, the issue of council tax reform does not have to be assigned to the ranks on either left or right, it is simply a process of modernisation which London badly needs. Council tax may not be the most eye-catching or politically savvy method for generating an ever so slightly fairer system of taxation for London’s properties however these steps are long overdue.