Speculation surrounding potential new property taxes in the upcoming autumn budget is already casting a shadow over the UK housing market, heightening uncertainty and dampening enthusiasm among buyers and sellers alike. Estate agents have reported a noticeable slowdown, particularly affecting higher-value properties, as prospective buyers adopt a cautious "wait-and-see" approach amid the uncertainty.

Rachel Reeves, the Chancellor, is reportedly considering implementing a tax on the sale of homes priced over £500,000, alongside proposals to remove the capital gains tax exemption on primary residences valued above £1.5 million. These measures are intended to bolster government revenues but have sparked immediate concern across the property sector. According to Zoopla, a third of homes currently on the market exceed the £500,000 threshold, with London and the South East set to bear the brunt of such tax changes.

The latest market data from Zoopla shows a mixed picture: while the number of sales agreed in July increased by 5% year-on-year and average prices edged up by 1.3%, the proportion of homes reduced in price climbed to 10%—well above the five-year average of 6%. Zoopla’s executive director Richard Donnell warned sellers must be realistic about their pricing strategies, as over-ambitious asking prices have resulted in properties languishing on the market for more than twice as long as those priced appropriately.

Jeremy Leaf, an estate agent and former chair of the Royal Institution of Chartered Surveyors, confirmed that although sales are progressing, the summer period had already led to a natural slowdown in activity. However, he emphasised how even the mere speculation of new property taxes has weighed heavily on market confidence, citing a tangible drop in buyer activity since reports of potential tax changes emerged. This echoes concerns articulated by Tom Bill of Knight Frank, who described the market as having become "a whole lot more price-sensitive" in light of these developments. He suggested that in the lead-up to the budget announcement, this speculation could prolong subdued transaction volumes and restrict stamp duty revenues.

This chilling effect on the housing market follows a broader context of fiscal uncertainty and tax pressures on property owners. Earlier this year, landlords demonstrated a rush to sell amid fears of capital gains tax hikes, with up to 18% of homes listed in September having previously been rented out, reflecting anxieties about possible increases from current CGT rates of up to 24% to as high as 39%. The government has also signaled a crackdown on long-term empty homes by doubling the council tax premium from April 2024, aiming to address housing shortages by encouraging owners to bring vacant properties back into use. This reflects a wider strategy to temper property market imbalances and raise additional revenue.

Economic headwinds and policy uncertainty have already begun to depress activity in the UK housing market over recent months. For example, in February, buyer demand hit its lowest point since late 2023, influenced by uncertainty around stamp duty deadlines and persistently high interest rates. Concurrently, UK house prices saw an unexpected small decline, defying earlier expectations of growth amid a potential rush to beat tax increases. Nonetheless, earlier in the year, house prices reached record highs before the anticipated rise in stamp duty prompted some buyers to hasten purchases, illustrating the market's sensitivity to fiscal policy shifts.

In sum, the looming prospect of new property taxes is compounding existing challenges in the UK housing market, intensifying price sensitivity and dampening buyer confidence. Stakeholders from estate agents to researchers caution that prolonged uncertainty ahead of the budget could result in subdued transaction levels, further tempering what has already been a cautious market environment. Sellers, in particular, may face tougher conditions and longer selling times if they fail to adjust their expectations to these rapidly evolving fiscal signals.

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Source: Noah Wire Services