New property taxes could be last nail in the coffin for housing investment
A new property tax could prove to be the final “nail in the coffin” for property as an investment, warns Rathbones, one of the UK’s leading wealth managers.
According to reports, the Treasury is examining options for property taxes ahead of the Budget – including a levy on homes sold for more than £500,000, the application of national insurance to rental income and a possible overhaul of council tax.
Rathbones has seen a marked increase in clients with property portfolios expressing concern and seeking guidance on how to react to changing legislation. This follows frustration over recent taxation changes, including reduced stamp duty thresholds and rate increases introduced in April.
Charlie Newsome, Divisional Director at Rathbones, says: “Far from being ‘safe as houses’, the investment case for residential property has shifted dramatically. Slower price growth, higher borrowing costs and increasing regulation have combined to erode the appeal of property as an asset class. A new property tax could be the last nail in the coffin for property’s status as a viable investment and cause potentially tens of thousands of people planning for retirement to rethink their strategy.
“A tax that scales with property values risks deepening the housing crisis. It could even create the perverse outcome where less well-off homeowners in deprived urban areas where house prices are high are penalised more than wealthy homeowners in rural areas, where values are lower.
“While second and holiday homes may still hold lifestyle value, their investment appeal has weakened significantly. By contrast, those seeking dependable long-term returns may be better served by a more balanced approach that includes equity markets, which have consistently outperformed property in recent years.”
A recent report by Rathbones found that residential property has not kept up with the current rate of inflation (3.8%) at 3.7% per annum between 2016 and 2024, leading experts to conclude that the Golden Age of property investment is over. In London, which historically delivered the strongest returns, prices grew by only 1.3% annually.
This contrasts sharply with the experience of earlier generations. Baby Boomers, born in the 1950s and 1960s, benefited from a golden age of property ownership between 1980 and 2016, when UK house prices grew at 6.7% annually – and at 8.5% in London.
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