Are property taxes damaging the housing market? 3 key points to keep in mind

With changes to Stamp Duty on the horizon, and concern over Capital Gains Tax (CGT) in the run-up to the 2024 Autumn Budget, the topic of property-related tax has recently sparked a great deal of debate.

From 1 April 2025, Stamp Duty nil-rate thresholds will return to £125,000 for existing homeowners and £300,000 for first-time buyers. The thresholds were temporarily increased in 2022 to stimulate the housing market and the economy at large. These changes and current CGT and Council Tax rules could complicate the property tax landscape.

There are a few key aspects of property tax that can influence how the housing market behaves and may affect your decision-making when buying a property. Here’s what you need to know.

1. A return to lower Stamp Duty thresholds could mean increased costs for most home and property buyers

Stamp Duty is a tax levied on most property purchases in the UK, and its effect on the housing market can be significant. Our previous article explores the specifics of Stamp Duty and the volatility it could cause in the 2025 mortgage market.

Here, let’s look specifically at how the upcoming changes to Stamp Duty could affect more than just mortgages, but the property market as a whole.

First-time buyers may struggle with upfront costs

For many first-time buyers, Stamp Duty can represent a substantial upfront cost, potentially delaying or even preventing them from entering the property market.

The current structure, where first-time buyers only pay Stamp Duty above £425,000, is more supportive. But from 1 April, this will revert to £300,000.

While you may have the option of adding Stamp Duty to your mortgage, it could affect the interest you incur over your mortgage term and may influence your loan-to-value ratio (LTV).

Potentially higher Stamp Duty fees might deter homeowners from moving

Upgrading to a more expensive property could involve significant Stamp Duty costs, potentially discouraging homeowners from taking this important life step. For example, if you don’t have much equity in your home or want to move to a more affluent area, you could face a significant Stamp Duty bill that impedes your ability to cover the cost of moving altogether.

Though you could add this to your mortgage, it may reduce your affordability and extend the time it takes to build equity. This could affect your ability to move again in future, as you may have less equity left over after a sale to contribute to a new house deposit.

As a result, we may see a pronounced lack of mobility in the housing market, which could affect overall supply and demand.

Landlords and second-home owners face increased costs

Landlords and second-home owners are also affected by Stamp Duty, as the tax can increase the cost of your initial investment.

Since you’d normally pay standard Stamp Duty plus an additional 5% surcharge, this could influence the types of rental properties or second homes you choose, leading to wider implications for the rental market.

In fact, increased Stamp Duty may prompt a rise in the number of rental properties returning to the market. The National Residential Landlords Association (NRLA) states that 41% of landlords have expressed a desire to sell between October 2024 and October 2025. This is a stark contrast to the 6% who said they would be buying a rental property in the same period.

This could influence supply and demand for tenants, with the chief executive of NRLA, Ben Beadle, saying: “While landlords selling up might benefit the minority of tenants in a position to afford a home of their own, the vast majority will face a growing struggle to access rental homes.”

On the other hand, if a vast number of landlords do sell up, first-time buyers, buy-to-let purchasers, and home movers could benefit from a surge in affordable properties.

2. Unchanged Capital Gains Tax thresholds may not be enough incentive for landlords to remain in the market

CGT applies to profits made on the sale of some assets, including properties that are not your main home (unless your main home is very large). This means that if you need to pay CGT, the tax will apply to any gains you made on the sale, not the total amount of money you received for the asset.

While most homeowners won’t ever pay CGT on their properties, landlords and second property owners may be obliged to pay CGT on their gains, as these properties are not considered a “primary residence”.

The main rates of CGT shifted immediately following the 2024 Autumn Budget and though property-related CGT didn’t change, many thought it would. Because of these concerns, some landlords rushed to sell before any pre-Autumn Budget rumours could come into play.

However, LandlordBuyer called the Autumn Budget an “anticlimax” for landlords, noting that an increase in CGT may have actually encouraged landlords to remain and a tax freeze could do nothing to deter a “mass exodus”.

Whether landlords will continue to exit the market remains to be seen, as Landlord Today notes that this may not be the case. They have said that there is no evidence to suggest a surge in new sales.

That being said, specific changes to the buy-to-let landscape, such as Energy Performance Certificate (EPC) regulations, [HM1] may be enough for landlords to want to sell.

It can be difficult to discern exactly what’s on the horizon and we may well see further tax changes in the Spring Statement on 26 March 2025.

For this reason, it may serve your personal goals better to speak with a mortgage adviser and find a solution that suits your individual needs and circumstances, rather than acting on conflicting reports.

3. Council Tax may be based on outdated property valuations

Council Tax bands are calculated based on the value of the property, but these models are based on valuations made in 1991. This means that new properties built will likely be set to a higher Council Tax band than a property of a comparable size that was built pre-1991.

According to HM Land Registry, the average price of a new-build in the UK was £424,049, as of September 2024. This would fall into the highest band, even if the average new-build home may be smaller than a pre-1991 home that falls into the same Council Tax band, highlighting the potential inequity in the market for the average homeowner.

More than that, the outdated valuations may discourage mobility, and areas with higher Council Tax rates may become less attractive for both homebuyers and investors.

Overall, the interaction between tax policy and broader economic factors, such as interest rates and inflation, can have a major effect on the housing market as a whole. Any changes to property-related tax can have profound effects on homeownership, investment decisions, and overall market dynamics.

Get in touch

No matter what type of buyer you are, working with a mortgage adviser to find the right housing option for you could help with your decision-making.

Whether you’re buying a home for the first time, or looking to invest in property, we can help demystify property tax and offer guidance for choosing a property that works for you.

Get in touch with us today to discuss your options. Email info@alturafin.com or call us on +44 (0) 20 3411 0079.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

All information is correct at the time of writing and is subject to change in the future.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.

The Financial Conduct Authority does not regulate tax planning or buy-to-let (pure) and commercial mortgages.