There’s a certain amount of satisfaction, though the feeling is infused with a large slice of annoyance, in predicting a potentially significant change in government policy well in advance of the news reaching the front pages. Within weeks of publication, a Minister or junior Whitehall official tentatively outline future plans which mirror precisely the original forecast and soon taxpayers are on the hook for yet another tax liability.
In my last article, published here just over a week ago, I noted how Denmark’s elected officials, “must decide every five years whether to increase the country’s retirement age if the life expectancy of the nation’s 60-year-olds increases. Earlier this summer, Denmark’s Parliament adopted a bill to increase the state pension age to 70 from 2040… Denmark’s current official retirement age is 67; this will increase to 68 by the end of the decade and to 69 in 2035. Five years later, Danes will be retiring at 70.
“Could the UK introduce a retirement age ‘escalator’ similar to the one operating in Denmark,” I asked, adding, “…few economists believe that while the UK is currently on track to have the retirement age increase to 68 by 2046, that date will almost certainly come forward. Instead, it seems likely that by 2046,the UK state pension will not be paid to people before they reach the age of 70.”
And lo! It was revealed a couple of days ago that Liz Kendall, the Work and Pensions Secretary, has commissioned Suzy Morrisey to review the UK’s official retirement age. According to the Daily Telegraph, Ms Morrisey said she would “examine the experience of other countries that automatically link payments to life expectancy, including Denmark which recently raised its [future] retirement age to 70.”
Law-abiding taxpayers, particularly older homeowners, will be disappointed to learn that there are several other forecasts, all of which come at a cost, we can expect to see officially revealed in the not-too-distant future.
Property taxes have always been a lucrative source of revenue for the Treasury. This year, the UK’s Office for Budget Responsibility expects those taxes to raise a staggering £15.7 billion. If that sounds a tad on the chunky side, have a sit down before you read the next sentence. By 2030 the UK’s property taxes are forecast to increase by a phenomenal 68%, to £26.5 billion.
The chief culprit is Stamp Duty, which in 2023/24, the latest full year for which figures are available, accounted for £11.6 billion of Treasury receipts.
Far too many of our elected politicians consider Stamp Duty the easiest of easy touches. When buying a house, every institution involved in the transaction, including lawyers, estate agents, removal firms, surveyors and others will wait a reasonable amount of time to be paid for their work, thereby acknowledging the time consuming circumstances associated with a property purchase.
Such understanding is not the Treasury’s way. In more than 90% of cases, Stamp Duty must be paid by the buyers, usually via their lawyers, before the transaction can complete. And goodness, this can be an enormous chunk of the property’s monetary proceeds.
A couple who might be downsizing and buying a house for, say, £325,000, will incur a Stamp Duty liability of £6,250. As a consequence, that wall of cash our imaginary couple expected when selling their former home will be severely depleted. Little wonder that the respected Institute for Fiscal Studies (IFS) has labelled Stamp Duty as Britain’s “most damaging tax”, and boy, does it have some competition.
The scope for further, more onerous, property taxes is significant. For example, the Treasury is believed to be considering proposals regarding a ‘National Tax’ levy on the sale of homes worth more than £500,000; another proposal under consideration is an ‘annual tax’ on property or land, irrespective of value. Given the state of public finances, it begs the question ‘will the Chancellor consider scrapping Stamp Duty, a particularly heavy financial burden which discourages people from moving?’ No need to hold your breath, while people looking to downsize may wish to step back and reconsider alternatives.
Stamp Duty aside (and the other costs associated with downsizing which, on average, comfortably push the house buyers’ expenses beyond £10,000), downsizing does hold appeal for some folks.
A smaller home is generally less expensive to run and maintain; moving to a smaller home is likely to free-up some cash, often the prime motive for selling up, and there’s rarely any need to continue storing offspring’s personal effects ever since they flew the nest a decade or more ago.
Conversely, people who have put strong roots down in an area have invariably become comfortable there, made a host of friends, are likely to be involved in local events and enjoy welcoming their relatives, children and grandchildren to their home. In such circumstances, older homeowners have also cultivated fond memories of a home and the area in which they live. A house might be priced at £x, but that doesn’t include its sentimental value - which can be substantial.
Fortunately, there is a solution which enables homeowners to remain in their family home and avoid relocating elsewhere, while releasing a large proportion of equity from what is commonly known as their ‘bricks and mortar wealth’.
Most importantly, equity release can be credited, at least in part, for enabling people to remain close to family and friends. Moreover, the equity released from the property is tax-free; there are absolutely no restrictions on how these funds must be spent. Nor are there any associated taxes such as Stamp Duty to pay. Indeed, because the process of releasing equity involves a financial product known as a lifetime mortgage, the use of which effectively reduces the value of a homeowner’s estate, the level of any future Inheritance Tax (IHT) liability can be lowered significantly.
Admittedly, releasing ‘bricks and mortar wealth’ is not everyone’s cup of tea, but it can ensure that there is no need for homeowners to move or downsize, while solving any understandable concerns regarding the decision to remain in situ. Over the medium term, it appears likely that people opting to release a percentage of the equity in their property as a tax-free sum will also benefit from avoiding the widely anticipated increases in property tax, yet another state-sponsored financial liability we can predict with a depressing level of certainty.
