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The Chancellor is under pressure over reports her autumn Budget will impose new property taxes that would amount to an “attack on homeowners”.
Speculation has centred on measures that would fall heavily on older homeowners who want to downsize, with fears of both a so-called “mansion tax” and a shift in stamp duty from buyers to sellers.
The make-up of what will be included in the Budget is surrounded in uncertainty, with Rachel Reeves rubbishing much of the speculation.
And some personal finance experts have warned people against taking decisions about their finances based on reports and rumour.
The Chancellor is reportedly weighing up imposing capital gains tax on main residences worth more than £1.5million, a levy currently reserved for second homes and assets such as shares. Reeves is also said to be considering a new vendor’s tax on sales of homes over £500,000 – replacing stamp duty, which is paid by buyers in around six in ten transactions.
Property insiders warn any such moves would deter thousands of older owners from selling, locking up larger family homes that are crucial to the wider market.
Agents say potential sellers are already holding off. Will Watson, of The Buying Solution, said: “I have already had conversations this week with a few potential downsizers and they have all said the same thing: ‘I was considering selling at some point soon’.
“If any of these potential threats come into action, they will simply hold out until a new government (they’re hoping) is in place. This would restrict stock levels even further in the short to medium term.”
Charlie Warner, of Heaton & Partners, told the Telegraph: “Almost all credible research we have seen shows that a mansion tax would result in a reduced tax intake.”
Geoff Wilford, of Wilfords London, said: “The idea of introducing a mansion tax on primary residences would be the single worst decision any government could make for the housing market. It would grind activity to a halt.
“People would only then move for the three unavoidable reasons: death, divorce or debt. With an extra tax burden hanging over them, that trickle of transactions would be all that is left.”
Lucian Cook, of Savills, warned that homeowners “would become more reluctant to downsize when faced with the prospect of a tax bill”.
A major report last year by the London School of Economics and the University of Sheffield, sponsored by Lord Mandelson and Lord Heseltine, concluded that stamp duty already deters older owners from moving.
It said: “Downsizers cannot buy a home that costs the same as their original house without spending money on the tax, while they can stay put for nothing. Many thus continue to live in homes that are highly unsuitable for their needs.”
Paula Higgins, of the Homeowners Alliance, described the potential changes as “an attack on homeowners”.
She added: “Uncertainty around property taxes causes paralysis in the housing market. We’ve just seen how damaging this uncertainty can be.
“In April this year, when stamp duty thresholds changed, transactions collapsed by 64% in a single month – the sharpest fall on record. Homeowners can’t afford a repeat.”
Jonathan Brandling-Harris, of House Collective, said: “Sentiment is everything in the property market, and right now, the Government seems intent on killing it.
“If you knew selling your home would trigger an additional tax bill on top of the cost of moving and buying, you simply would not move unless you absolutely had to. That means fewer transactions, less choice and a market that grinds to a halt.
“Every part of the market would feel the squeeze – downsizers clinging on to properties they would otherwise release, growing families unable to trade up and buyers at the top end left with fewer options. Once people start to sit tight, the whole chain seizes.”
Harps Garcha, of Brooklyns Financial, added: “The Government’s plan will have a massive impact on London and the South East, where many middle-class families have sacrificed themselves for years to build wealth through their homes.
“These homeowners expected to rely on that equity in retirement by downsizing, yet they now face being taxed twice, first through stamp duty and then capital gains. Rather than rewarding prudence, this policy punishes those who have worked hard and planned responsibly for their future.”
A Treasury spokesman said: “As set out in the Plan for Change, the best way to strengthen public finances is by growing the economy – which is our focus. We are committed to keeping taxes for working people as low as possible.”
