A prominent figure in the property industry says government proposals to reform taxation could reduce activity in a market that’s already lacking confidence.

Oliver Prior, national commercial director of Auction House, has analysed the different tax threats – many aimed specifically at landlords – and has given a critique.

He says: “At the moment, these proposals are just that: draft proposals that the government is floating to see what, if any, land with the public. However, the discussion that this has opened is likely to make both buyers and sellers nervous in the run-up to the Autumn Budget. Sales may slow down over the next few months as the market waits for clarity.”

His critique looks at the government’s four different tax proposals floated in recent weeks:

National Insurance for rental income – Prior says this is could have a major impact on the already stretched private rental sector.

“We have seen it suggested that the Chancellor is considering charging landlords National Insurance on rental income in a bid to plug the £40 billion budget black hole. This is an unprecedented consideration that further squeezes landlords and weakens the viability of property ownership as an investment. If this tax is implemented, investing in property, which supports our rental market and the growing demand from renters, will be even less attractive to would-be investors.”

Capital Gains Tax – Facing a budget shortfall, the Chancellor also appears to be considering removing the Capital Gains Tax relief on primary residences that are worth more than £1.5 million.

Prior sees this as a proposal to be wary of: “Applying Capital Gains Tax to private residences will likely stall the market; down-sizers could decide to stay put, which will reduce activity in the market and put downward pressure on growth.

“Applying Capital Gains Tax would be a particularly large burden for those living in higher value areas. It could also affect the older generation significantly, as they are more likely to be living in homes that have appreciated in value over the course of 20 or more years. Capital Gains Tax will inevitably reduce levels of activity as people hold onto their property to avoid paying an ever-growing tax bill.

“To truly create more fluidity, property owners need to be incentivised to upsize and downsize freely, without a high tax burden being imposed on them.”

Stamp Duty Tax – Current proposals have suggested that Stamp Duty on primary residences could be abolished and replaced with a national Property Tax. This would be an annual tax calculated as a percentage of the property value when purchased. The thresholds for this are currently obscure, but it is generally understood that the tax will apply on a sliding scale of between 0.5-0.8% to properties with values of over £500,000.

The proposal is being considered as a way of removing the Stamp Duty hurdle, encouraging market activity and charging owners a proportionate tax based on the value of the property.

Prior comments: “It is argued that Stamp Duty stifles market activity as a tax on trading. This makes the property market less fluid than it might otherwise be. A new property tax on primary properties could potentially remove barriers to entry and encourage stakeholders to engage with the market more readily.”

Council Tax restructure – The Stamp Duty proposals are being considered alongside much-debated Council Tax reform. Council Tax is set at a local level as a means of distributing the local funding requirement across an authority, but with some local authorities accumulating huge deficits, pressure is growing to modernise the system.

“We are stuck in a pricing structure whereby multimillion pound townhouses in the Royal Borough of Kensington & Chelsea might be paying the same monthly council tax bill to that of a flat in a less affluent part of the Borough” explains Prior. “Council Tax is determined by bands linked to property values back in 1991. The market has clearly moved on significantly since then, and the system of property tax should be updated to reflect this.”

He adds: “Total upheaval of the system would likely be a step too far, but the government may look to adopt additional higher bands for higher value properties as a means of increasing tax revenue. This would be easier to implement and wouldn’t require structural change.” The new national Property Tax proposals have the owner-occupiers paying the tax when they sell the property.