Sunday Supplement 24 Aug 25 - The Only Way is Up

“The only way is up.” - Yazz and the Plastic Population, 1988 (Originally written by George Jackson and Johnny Henderson) This week’s quote again looks forward to the deep dive - tax, tax and tax on property have dominated the headlines this week, and I had to get into the arguments and analysis. Before we go into this week full hammer - Rod Turner and I will be running our next Property Business workshop on Wednesday 1st October, in London - subject matter this time is Investment, with an emphasis on what metrics you really need to be considering to run your property business properly, and building your business to scale. We’re digging into the real fundamentals of property investment for growth—from proper valuation and strategic debt structuring to the investment metrics serious pros use (hint: ditch ROI and yield). Learn why some deals work for some and not others, how to manage risk as your portfolio scales, and when to shift gear from side hustle to scalable business. We’ll break bottlenecks, build strategic pillars, and unpack real-life case studies of fast company growth. How have we done so many deals? We’ll tell you! Book the SUPER EARLY BIRD tickets with 20%+ off, now: http://bit.ly/pbweight Let’s plough on with our opening segment then - Trumpwatch. Has it also been “silly season” in the USA? There was an FBI raid on a former Trump aide’s home (John Bolton). There’s limited room for critique of “politically motivated” lawfare on one side of the fence or the other in today’s world - having used a bit of downtime this week to watch Lucy Connelly get interviewed by the Telegraph (the lady who went to jail for a tweet, if you don’t know the name), it is very clear that our Government are keen to use the system when it suits, they are just less obvious about it. Still, upset DT and bear the consequences it seems, which I think everyone knew anyway? There was also a flash of the sort of deal anyone who is remotely neutral - which is difficult - expects from Donald Trump. After a whole variety of funds and pledges issued by the US Government, they have “swapped” these for equity in Intel (a great move in a distressed but giant company) of $11.1bn, and at a discount of around 17.5% as well on the Friday closing price. That’s a paper gain of $1.9bn, and apparently all Intel needs is a decent CEO after a bad run. Seems a bit simplistic, and I’m sure there’s more to it than that - but on the face of it, what a move for both parties. I can’t think of a precedent in terms of a move that would help the accounting of a massive company and also show a net gain to the Government, and not in a time of crisis at all - credit where credit is due. The fears - well, those looking to keep Mr Trump sweet will buy inferior Intel chips over other chips, under pressure or otherwise. It feels very geopolitically strategic to me, though, given the various tariff threats around semiconductors as well - and although you fear any plans might be quite simplistic, it does appear overall to potentially be a move in the right direction. The US Government has no voting rights, and no board seat - so they won’t be activists. It has happened before - when the US Government put $50bn into GM after the 2008 crash, at an eventual booked loss of $10bn. This investment looks wiser, and you’d expect Intel to climb on the back of it if they have the Government behind them. The fear would be that the president turns on the company/CEO if there are things he doesn’t like, and that would affect the share price - but in the next few months, you’d think the price would move up not down if the wind stays behind them! You might also remember the fanfare when the president was told to pay $465 million in civil fraud fines in a New York court - that was thrown out on appeal this week, and will go down as a good result for the Donald. In the same breath, reports of up to 300,000 federal jobs being cut by the end of September under the DOGE cuts initiative were coming in. Tariffs had a quieter week, but the focus was furniture - 50 days has been allocated for an investigation to come up with a number, basically. Overseas manufacturers saw share prices drop, domestic manufacturers saw stocks rise, to a net loss in value overall for shareholders (which reflects the Government taking a larger slice of the pie, of course). Zooming out - the tariff chat continues as we enter the eight month of the administration relatively soon; this market for imported furniture is around $25bn to the US annually, so there’s a 10 figure sum to be lifted here you’d think. Over to our core subject now - the real time UK property market. Chris Watkin delivers the goods once again - Week 32 has been reported on. Listings printed 32.2k, edging slightly down again as the school holidays continue around the country as far as the figures go, and we are now only 3.5% higher than 2024 and 7% higher than the pre-pandemic market in terms of listings year-to-date. My “10% more stock than a normal market” ready reckoner is still working on the back of circa 2 years of overperformance in listings compared to historical averages. We are 11.6% ahead of the 9 year average, but that does include 2020 which pollutes the figures somewhat. We are really coming back towards the 2024 numbers now, week by week, having been 6-7% above them at various points in the year - but we are still listing more than we are selling, so it is all eyes on the withdrawal rate as a general rule. “Only” 20,600 price reductions in week 32, 14.1% being July’s official number, with 14% reduced in June, compared to last year’s 12.1%, May’s 13.4%, and the 5-year average of 10.6%. More stock, more reductions - absolutely and relatively. 33% more reductions than the 5 year average, if you take the difference between 14.1% and 10.6%. “25% more reduced properties than a normal market” also works as a ready reckoner. One in seven properties on the market are being reduced each month (so we are currently running at perhaps 90 to 95 thousand price reductions per month, to be clear!). Can’t find a deal? Just keep the legwork up and you’ll get there. You don’t tend to see 14%+ of stock being reduced in strong markets, by any stretch. Holidays have slowed things a little but sideways pricing continues……. 25k homes sold subject to contract, for a quieter week but the 2025 average is 26,500. Healthy is still the best description. SSTCs are up 6.9% year on year and 14.2% on 2017-19, and still nearly keeping pace with 2022 (which to this point was a very hot market indeed). With SSTCs up 6.9%, whereas listings now are only up 3.5% on last year, this signifies more transactions than 12 months ago, to this point in the year, for sure - or, put a different way, comparatively this looks like a more functional year than 2024 was. We went into August with 763,178 homes on the market - around 5k up on July’s number. For context, as the market got stickier before the pandemic that number was c. 660k, a sellers’ market is more likely to be under 600k. At the end of July 2024, 716k were on the market. These are more “higher high” numbers and so the “flat” feeling as I’ve been saying for some time now will likely continue to manifest itself in a steady market without much excitement as we get through the school holidays. It’s the second month in a row of not moving too far forward though - fewer than 1% more homes on the market compared to the month before - it feels like we are nearing or are already at the peak? We can’t read too much into August’s activity anyway but there’s always an extra surge in September when the school holidays are over, alongside a clearout of “no-hoper” stock where vendors mostly can’t take the medicine that the corporate agents are trying to prescribe for them - so we likely need to see those figures before drawing conclusions, as they could be somewhat different this year with just so much stock out there. Chris also looks at the per square foot on sold STC properties - it has a very strong correlation with prices that hit the land reg in 5 months’ time. This time round - July was at £344.78/sqft and that was 1.97% higher than July 2024 and 3.85% higher than July 2022. It was down around half a percent on June’s SSTC number of £346.45, I think we are holding on to about a 2% - 2.5% up market for 2025, a little under my prediction (3.75%) and also below inflation, wage rises and the likes. At the risk of the broken record - sideways, sideways, sideways. Fall throughs nudged back further below the long-term average of 24.2%, printing 23.2% - relatively normal “noise”, there’s been very little volatility around the long-term average for many weeks now. The net sales are still there or thereabouts - 19.3k, 5.7% up on last year and 10.6% higher than 2017-19 - not quite at 2022 levels but let’s see where we get to by the end of the year - I think it will be a close run thing on transaction volume compared to 2022 in a much less volatile year. I always give Chris a weekly shout out here because he’s more prolific than “just” this epic tome he releases weekly on the UK property market - he comes up with some great stats on a regular basis. Drop him a like, subscribe, and all the rest of it and some kind words for his content creation. If you are in the industry and want support in growing your business or to be a more effective communicator/be more in touch with your local market - that’s his core business - give him a shout. The article gets published on the Property Industry Eye website, and the video on his YouTube channel - @christopherwatkin

Time to look through the Macrofog once more. Another meaningful week. First up - my Mastermind specialist subject Magnus/John, Inflation. Fairly ugly. Then, the flash PMIs of course - and some good news there. I’ll use the third slot to look at the OBR’s monthly public sector finances commentary (it’s quite hard not to think of a couple of words of commentary there ourselves, I’m sure!) - side by side with the ONS private rents and house prices report (sneaky, I know). At the tail end - yep, gilts and swaps, but you knew that, right?

Inflation. February 2021, while the Bank of England was talking to the commercial banks about negative rates, I sounded the klaxon. I threw a dart and said it would be 4 years before this was “sorted”. Now, you could argue that it was sorted when we had that fluke print of 1.7% in September 2024 - we were back below target. However, with a print of 3.8% this week for CPI - which caught out economists a touch, as they forecasted 3.7% as the consensus number - we are nearly at double the target again, and very few people think we won’t be seeing 4.xx% fairly soon. It was May 2021 when Core CPI crossed the 2% threshold from the downside, and we haven’t had a core CPI print under 3% since September 2021. That’s one of the main reasons that has kept me talking about this all along. How about CPIH - which the ONS prefers, as I always say, factoring in housing costs (this looks more like the US CPI than our CPI does, although the two often get international comparison) - CPIH is slightly less “noisy” than CPI, too, but this won’t be the time to switch, because it printed 4.2% for July 2025. Core CPIH also printed 4.2%, and Core CPI was also at 3.8%. There’s usually a scapegoat somewhere for when inflation beats target - this month it was air fares, pretty classic “summer” reasoning. But these prints are high, and I asked my LinkedIn audience to speculate on the inflation “high watermark” of this cycle. The most popular answer was 4.5% or above, although I think that’s fairly bearish - it may well get tested. 4.25% ish would be more like my high watermark, but it will depend on any external factors - as I’ve been saying over recent years, we are so much more fragile when the underlying is at 3% let alone 4%, than we are when the underlying environment is more “normal” (pre-Brexit referendum vote, for example - we had a shock as far as the markets were concerned, but the underlying normal conditions meant we absorbed it relatively easily). Another point of order - food inflation is running at a level which hurts the bottom 10-20% much more than anyone else, but food inflation is stripped out of core numbers (as is energy, alcohol, tobacco - all of which can have some volatile pricing) - so, whilst it is far from ideal, it isn’t the driver here - just getting caught up, like lots of industries with lots of workers paid close to the minimum wage, with national insurance hikes and allowances being cut. One piece of good news which is lost in the ether - OOH, the owner-occupier measure of housing, absolutely cratered. This isn’t a surprise given reports about stalling rents that have been discussed and analysed here over recent weeks and months - but a drop from 6.4% to 5.5% in a month is faster than anyone expected. Great news, still too high, but that cycle and the peaks at 8% as recently as the turn of the year are definitely on the way back down to somewhere near “normal” (although I still maintain that normal these days is 3%, and I will be maintaining that throughout the 2020s it seems with current fiscal policy being the way that it is!). Owner-occupier housing costs had the biggest deflationary impact on the CPIH numbers this month (equivalent to the amount of impact that transport had on the upside, pretty much). Now - there is some factual basis behind blaming airfares. Get this - between June and July 2024, airfares rose 13.3% in a month. Typical school holidays, right? Ouch. Nothing compared to this year though, where they rose 30.2% in the month. Wow! Gouging at the highest level. Food inflation in isolation - basically 5% now, and racing upwards (print was 4.9%, up from 4.5%). Plenty have speculated that this will hit 6% by the end of the year. Not good for those in lower income deciles (or for anyone, frankly). Underneath it all, goods are inflating (at 2.7% per year). Doesn’t sound too bad, but they were deflating in price while inflation was coming back down in 2024, so instead of a downwards effect, they are also a fair chunk above target on their own. Aside from rental inflation losing steam, very little has contributed to inflation NOT going up, if that makes sense! It is also very UK-focused inflation it seems, as France printed 0.9% and Germany 1.8%. It doesn’t look good for Government numbers come September when they have to face the triple lock for another 4 point something percent increase on pensions (whether that’s wages or inflation, it is genuinely close at the moment but we have 2 months worth of numbers to come), and the rest of the welfare system. The black hole grows……and be warned, once you have inflation, squeezing it out is very hard (especially while we are busy cutting rates and have been for 12 months, of course). You could argue though - the economy needs some heat in it. I don’t disagree with that - but the upside risks, especially to an exogenous shock, remain significant, and don’t help any of us sleep any better at night. It’s all risk management, ultimately. Onto the PMIs. As I read through the other reports on the S&P global site, I noted that they decided to lead with “weaker increase in starting salaries amid further sharp rise in candidate availability” - not ideal chat, and you’d think this sets the tone for future private sector employment numbers. As discussed last week, public sector jobs are offsetting some of this - but a larger transition from public to private sector on this front will have a drag on productivity, aside from anything else, that is damaging for sustainable growth. The (flash) PMIs told a different story, though, for August. Fabulous news overall - the composite index printing 53.0, which is bang on “healthy growth”/2% GDP growth pace, with services at 53.6, and manufacturing at 47.3. The services and composite numbers are 12-month highs. For the past couple of months, the numbers have been revised quite a long way upwards, as well - it doesn’t feel like that will be the case this month, but we can always hope. The strapline? “Strongest rise in UK private sector business activity since August 2024”. New business volumes expanded at the strongest pace since October 2024. I get the feeling that the business community has come to a similar conclusion to myself (and led by all the chat in the news, of course) - business tax isn’t taking the pain in October at this budget. The people are - whether it be savings, inheritance tax, property (gulp - more in the deep dive), or whatever it is. The text does note that employment total workforce numbers decreased for the 11th month in a row and at a “marked pace” - just to take some of the edge off. Input cost inflation was also up to its highest since May, with employers NI hikes still being cited (of course). If September’s PMIs look like this, it really will be very welcome news. GDP figures might not follow immediately (especially with the noise we have had in Q1 being influenced by a variety of external factors including tariffs), but I would rather we had an underlying 53 print in the PMIs and not worry too much about the GDP quarterly figures (which are always subject to tons of revisions anyway, just as we saw last week - and there was another one this week about just after the pandemic, in case you missed it!). The take from the Chief Business Economist at S&P Global? Accelerated growth after a sluggish spring, manufacturing stabilising, but the demand environment is uneven and fragile. Goods exporting falling especially sharply. Payroll numbers continue to be cut at an aggressive rate. And - most importantly - for the first time I can remember for over a year, he did not call for a further rate cut. Instead, he recognised that with inflation high, and this report looking a little better, that future rate cuts are going to be very data dependent. We have to take good news away from this little lot. Next up - Private rents and house prices from the ONS, and monthly numbers from the OBR. The usual confusion - the figures are July (for rents) and June (for house prices). Rent increase growth rate - the headline number - is down to 5.9% in the last 12 months (last print 6.7%). Scotland remains behind the pack as it adjusts to the removal of rent controls, with a rise of 3.6% over the last 12 (go figure, eh?). June’s house price print is 3.7% up on the year, a large increase from the 2.7% print for May 2025. Now - there’s been an “improvement in methodology” so all bets might be off in terms of that 3.7%, as there are larger-than-usual revisions in this month’s release from February 2025 onwards. Let’s get into it. Prices have had a very wobbly year as they really got “noisy” around the Stamp “holiday” deadline of 31st March. The number so far in 2025 for year on year increase has varied from 2.5% to 7.7%, which is Covid-size noise. These “improved methods” of which they speak have revised the noise down a bit, and overall are showing a lower increase in house prices in the UK over that period from February onwards now. I remember another improved method last year that was more reflective of the types of houses changing hands (cheaper houses going for more money, basically, in the face of interest rate normalisation) - but this one is to do with new builds and overestimates of sales prices and costs, apparently. When we look at the regional figures on prices, the North East laid waste to all other regions with a 7.8% annual print, a full 700 basis points ahead of London at 0.8%. We - as usual - go from North, to Midlands, to South, as those figures decline - with the England average at 3.3%. The North East wins the rent inflation chart too - with an even higher print of 8.9%, so yields are just about still increasing there - the difference here usually is the placement of London, but it is back in the pack this month at 6.3% versus the England average of 6% - the laggard remains Yorkshire and the Humber (I am still suspicious around this, to be honest - why? The ONS never explain) and the other 3 regions below the average are the West Midlands and the South East and South West. However - yields are increasing in every single region as rent growth still outstrips capital growth according to the ONS. This story is often quite similar month to month, although some of the regions are moving around. There has been an element of convergence between the house price increase and the rent increase - the former has been a little bit all over the place this year, the latter has been falling (but from a high of 9%). This is congruent with the inflation figures of course, and the OOH measure at 5.5% for July is very close to the rent inflation figure of 5.9% (the difference would be other housing costs, not just limited to rent or proxy mortgage figures). I would like to say one thing, however. This outperformance of the North and to an extent the Midlands is not sustainable in the long run, nor will it persist (in my view) when mortgage lending is a) cheaper and b) comparatively easier to come by, as it now is with affordability and stress tests loosened somewhat in the regulatory guidelines. The bigger forecasters don’t agree and just think the North and the Midlands will outstrip the rest over the next 5 years - I don’t see a reason why the South and particularly the South East and London won’t catch up on what’s now been a laggardly period over the past 5 (or in the case of London nearly 10) years. The OBR monthly report, then? I’m going to have to call it out here. This was woefully under-reported this week, and there is definite “selective bias” going on in the reporting. You could say that’s always the case with political parties - you could say it is more symptomatic that the press leans more right than it leans left - you could say that you don’t get clicks for saying “we actually hit our targets or did a bit better this month” - people only want to read what reinforces they are already being told or want to believe. You could say the media are biased against Rachel Reeves because she is the first female Chancellor. I can’t tell you which of those statements are true - and it isn’t “pick one” because of course, several of them can be true at the same time. The truth is often a mixture of all of the factors, although the misogyny claim is more directed about the sort of commentary RR attracts, rather than failing to report on when she doesn’t fail (and revelling in reporting when she does). But it does feel like the deck is a long way stacked against Reeves. You could take the alternative view - that she’s bought that on herself (not misogyny, to be clear, but performance or reporting bias). Hurting the private sector in the face of helping the public sector might be a more balanced view - and so far, it has worked out OK in terms of growth figures, poorly in terms of unemployment (although things are going OK for inactivity, as I pointed out last week), and poorly in terms of inflation (there’s no real argument any other way there). The currency is doing OK (although 2025 is the year of the weak dollar, so it is more a case of avoiding errors). The debt, and fiscal policy, is not pro-growth in my view, and Government spending can only do so much. Still, I think I’m willing to raise my overall assessment at this point on Reeves to about 5.5/10. I don’t LIKE some of the stuff she’s done (indeed, it has actively hurt me) but arguably I’ve done well because other people panicked before the last budget, so it might be a wash. I don’t think hurting the private sector is a good long-term solution, but that might well not be the long-term plan, it was just the short term stopgap (he says hopefully!). “Could do better” would be a classic school report here. So - what was the headline that wasn’t a headline (OK, the Guardian published it, but they were the only ones I saw that did)? This monthly commentary on the public sector finances measures how much we have borrowed versus the OBR forecast, which is the only one that really matters for fiscal policy (many more are used for monetary policy, of course, but the OBR is so very influential that this is the big one for the Government). To very little fanfare, we borrowed less than expected in the economic consensus but had moved from 3 months into a year borrowing exactly what was forecast, to 4 months in and borrowing £100m more than expected. This will sound insanely blasé, of course, but that’s a rounding error at this level (I mean if anyone ever wants to make a rounding error like that in my bank account, of course, I will gladly accept it and keep quiet!). Net debt? 96.1% of GDP, just so we are clear. Not ideal, but not moving up horrifically quickly. The news versus forecast - nowhere near as bad as these £50bn+ black hole claims have been saying, the last couple of weeks has wiped out an awful lot of that. Inflation much higher than predicted for September, defining the Government increases in many benefits payments as discussed already, will hurt - and will also hurt on the cost of debt when it comes to index-linked bonds - but I don’t see a problem anywhere near as high as the commentators have been suggesting. More growth than expected is phenomenally helpful too. Gilt-y pleasures, then. The 5-year? A quiet week that opened at 4.061% and closed at 4.094%, with the top being 4.171% on Friday morning but there was a fast decay back to close under 4.1%. The swaps? On Thursday the 5y gilts closed at 4.13% and the swaps closed at 3.776% in unison, 35.4bps below preserving that discount we’ve talked about for over 12 months now. One month ago? 3.663% and one year ago? 3.683%. So - if you notice that 5-year mortgage rates don’t look a lot lower, this is why! How much did the longs go up, then, we ask ourselves? On Monday we had our highest close since 1998 on the 30s, at over 5.6% (this really, really was a whopping number). Not much of a haircut since then to close at 5.547%, to be basically unchanged for the week as the open was 5.542%. Half a basis point. Ergo, the yield curve got slightly shallower for the week - by 3bps. Nothing to write home about. Still - we can see support and there are buyers for these bonds above 5.6%, it would seem. Why the drift? Well, inflation, mainly, but Monday was not inflation day. It may well have been more of a continuation of last week’s activity, plus internationally most of the developed market gilts saw highs as well. Not all economies have exactly the same problems but there is a variant of the population/demographic situation (too many non-workers, not enough workers, particularly age-based) in much of the larger economies in Europe.

Nothing to get too sad about. This week’s deep dive selected itself, as I said, because what else could I do other than address the multiple lines of attack that seemed to “leak” (read - test the water) from the Treasury this week about changing tax on property.

The heart skipped a beat when the initial assessment was “tax reform on stamp duty”. Yay! It is a terrible tax that discourages transactions. I have multiple transactions each month that I don’t get involved with because of SDLT. I can’t be the only one. This is what transaction taxes do, ultimately. But - replace it with what? I ran a LinkedIn poll on this, offering a few options. The narrow winner was a US property tax style system, which was to an extent proposed this week as one of the “solutions”. Don’t pay up front, but pay monthly. Confusing to those of us who pay monthly (every household, unless you have an exemption), because surely this is just council tax….is it not? Well, no, because…..it would have to be more (to make up for £15bn+ per year in lost revenue if you took away the transaction tax). How does the US system actually look, because it is often lauded as a “great solution”. Well, it depends where you live - if you live in Illinois or New Jersey, the effective tax rate is 2%+ of the property’s value, per year. So, on a 300k “average” UK home (near enough), that would be council tax of around £6k per year at its most aggressive. In the most generous states, such as Alabama or Colorado, it is around half a percent per year (so £1,500 per year) - cheaper than our current council tax system, as a rule, which of course also varies at the council level (so there is an element of similarity). Some states reassess values each year, some of them (like California) with a 2% cap on the increase (which distorts mobility, of course, for older residents who don’t necessarily have massive incomes any more but might pay more tax per year if they downsized, if they’ve been in a house for 30+ years). What do we learn from what tax experts and economists think about the US system? Well, like SDLT but different, it can lower the amount of transactions there would otherwise be, because of the way it plays out from state to state. You might also argue it changes mobility between states - and, if you listen to the anecdotal evidence out there (and watch population figures) - tax status is causing significant “state migration” in the US, from California to Texas for example. Lower property taxes sometimes translate into higher values. However, unless you are a strict libertarian, you accept that taxes have to be raised somewhere, and so the system “is the system” - public services have to be paid for somehow. The argument for more tax on property and land is that it, unlike “the rich” for example (and when that is said, what’s really meant is the really-quite-super-rich who you can’t tax and raise billions, because there are a small number of them and many of them are already worldwide-mobile), land has a fixed supply. Common sense economics, really. However, all tax changes make people change behaviour - and this is widely known by HMRC, the OBR, and every other relevant public body. What we have is a system that looks similar to the US already, PLUS large transaction taxes. However, it is hard to have this discussion without bringing the cost of other frictional costs into play. You might be loosely aware that there’s a long-standing discussion about the hollowing-out of the UK estate agent. We moan about paying 1% to the agent on a sale (plus VAT of course). Then, our legals are really not very expensive for conveyancing, when you consider the cost of professional services in this day and age. The SDLT is huge, and has got “huger” twice in the past 12 months, but that’s the biggie (we need to throw in moving costs too, but we can assume they are largely equivalent across comparable nations). With this in mind, I looked at the costs of moving in the G7 nations, for a comparison. What usually washes out is that it is WHERE the money goes that really causes the issue, rather than the actual percentage. For example - a “round-trip” transaction in the USA is between 6.5% and 9% in costs - with perhaps 5-6% being paid by the vendor to a realtor. That is going into private business, rather than to the state, although you would expect business taxes on profits of course. There are transfer taxes of up to 2% paid by the vendor (so think small SDLT, paid by vendor). In the UK - our numbers still come out cheaper (forget investment property and the extra 5%, as much as you can’t, of course!) - at 3-4% overall in cheaper areas, but at more like 8% to 13% in London based on average prices. Add 5% on to each of those for investment transactions, to keep it easy. Canada - between 5% and 9% total, but in Toronto it looks more like London (Not London, Ontario, but London, England!); Toronto has buyer-side land transaction tax at around 4% to 7% meaning that 8% to 12% is a better range for the city specifically. Germany - 12% to 16% in total - commission paid on both sides to the agents, notaries, brokers getting around 6%-7% of that in total. France - notoriously expensive on the buyers’ side (although not as bad as Germany) - 11%-15% on resale, again with very expensive brokers taking between 4% and 7% of the transaction. New builds are cheaper to transact upon. Italy - another country with a “second home” additional duty - again notaries, buyers agents, and sellers agents, pumping up costs - 9% additional duty on second homes. Be careful what you wish for, folks - with frictional costs being 7%-10% on first homes and 12%-15% on second homes! And then Japan - looks more like London again, with frictional costs around 9% to 13%, and double agents, acquisition taxes, and the likes. This is worthwhile because of all the analysis I listened to and read this week, no-one really tried to make this case. Perhaps because those talking about tax have an agenda, mostly, to try and keep tax down (I’m not complaining about that, simply stating a fact). Normally we would look at comparable countries and analyse based on that. As I said before, the primary difference seems to be “cui bono” - who benefits - and for us, mostly, it is the Government, not the private sector (who survive on wafer-thin commissions and sausage machine conveyancing). Our 3%-4% for cheaper housing is by far the cheapest in the G7. So, all we have to compare things to is when our transaction taxes were far, far lower (and back then there were far more transactions!). It will never be untrue to say that transaction taxes lower the number of transactions that take place, but the equivalence that you would need to draw would be that it is more damaging to the economy to stop people from moving. Then, you can also get into some analysis which very few people do. What’s the actual CASH requirement to move house? If, as a first time buyer, you can borrow at 95% (or even more), but (in London) SDLT might look like 3% of the transaction anyway, the SDLT is 60% of the size of the deposit, or makes the required deposit 1.6x bigger if you look at it in an alternative way. This is a blocker which COULD be worked upon - you could pay your SDLT over 5 years, for example, to grease the transaction wheels - for first time buyers only - this is if you really cared about getting people onto the property ladder, and not relevant to investors (unless, in a huge volte face, you actually wanted to encourage them after spending the last decade doing your best to discourage them). Won’t be happening in this Government I don’t think, and we all know the focus is on raising revenue rather than actually helping people, most of the time anyway. That cost for a London first time buyer has gone up by 7.5k in almost every case since the end of the Liz Truss SDLT holiday from 2022 - no small beer when considering your very first house move. The alternative is to encourage and support people taking 5-year personal loans to pay the SDLT, but why not cut out the middle man and allow HMRC to offer the plan at a lower rate of interest but with a restriction on the title or a second charge?

What about the “leaks” from this week and the probability of them happening? First up, tax on homes sold for more than £500k - there was a paper being discussed in Podcastistan this week (and one kind regular reader shared the original paper with me too) - from Tim Leunig, called “Onward - a fairer property tax.” Some good points are made in the paper:

Council tax is regressive (poorer pay more - you will have heard the old “a 3 bed semi in Blackpool pays the same at Buckingham Palace”, I’m sure)
SDLT is a terrible tax - neither of the two taxes meet any of the criteria for a “good tax”
Make it proportional, a percentage of the value of the actual property. His idea - local government taxes property worth up to 500k, central government after that (let’s remember that ATED, the annual tax on enveloped dwellings, already exists - a tax on any property not let out that is owned in a limited company and worth over 500k - if you have assets within your limited companies that are individually worth over 500k you should make sure your accountant, or you yourself, are filing ATED returns even when they are zero returns)
In order to be fair, you have to stop stamp duty and then wait for the new revenues to come in on these homes above 500k (creating a new black hole, Tim?) - note this is not a revenue raiser in the way that Leunig proposes it; the 2 systems are equivalent in their tax-raising ability

I don’t see this taking off, simply because the cash gap while we wait for the revenues is politically unsustainable at this time. SDLT raises about £15bn per year. Also - why would you stop the 5% additional for second home buyers - it has not stopped the investment market, although it does make some transactions unviable. Other countries are levying it, Scotland is already at 8% and still has an active investment market (now that rent controls have been addressed, anyway!) The mentality of the 21st century, you’d think, would rather pay (more!) monthly than pay up front. However, those nearer the end of their careers may well think twice. Also, a whole bunch of people who are lucky enough to live in houses above 500k don’t pay the tax, since they’ve already paid SDLT. Ergo, they don’t move because they don’t want to pick up a bill at say 10k a year (assuming 2% is roughly where it would be pitched). Onward have another model, that came to light on Tuesday. 0.54% property sales tax on homes between £500k and £1m, and 0.81% on homes over £1m, payable on sales of a primary residence. Well, what a vote loser THIS would be, crushing middle-class aspirations, I would think. The exemption on private homes for CGT is a tough one to touch, especially when inheritance tax lurks in the background anyway! The FT wasted no time in driving a truck through this one. There were suggestions that ditching stamp would mean another 70k transactions each year (although it is clear that it really would depend on what replaced it); it would also be very regionally distortionary, of course, with 59% of London homes being over 500k versus 8% of homes in the North-East (according to Rightmove data). Feels tricky - the tax gap is the problem, unless people were given the option (ha ha, this is the Government). What did get a fair amount of airtime last summer/pre the October 2024 budget was Council Tax reform. Now - this is one that will age the audience. Where were you for the poll tax riots in 1990? Some reading or listening will have been safely in mum’s tummy, or not even a twinkle in your parents’ eyes. I was 11, and remember the news and the reaction right up there with Britain crashing out of the ERM. The memories are etched in there, 35 years later. I’m the same age as Rachel Reeves, and I’d expect “similarly economically interested”, so I dare say she might feel the same, and that political fear of even touching council tax has been there ever since. The system is widely critiqued, and has been for a long time. No revaluations since 1991. Antiquated, outrageously unjust and manifestly absurd, Andrew Rawnsley said this week. Split the top band or bring some new bands into play, to catch the highest value properties - I expected this at last year’s budget, and it fits the bracket of “taxing the wealthy”, which has widespread political support. On the stuff that doesn’t move - property - which makes sense. Across the political spectrum you saw the press this week describing how the frozen 1991 bands distort equity and funding. Backlash - in terms of riots - seems unlikely from Kensington and Chelsea, for example (or the leafier parts of Solihull). We won’t like it, but we will take it. We then heard that rural communities will take it particularly hard over the coming 3 years, and that 5% annually might become the norm for this parliament (it is where my inflation expectations were on council tax anyway, I’ll be honest!) That part still strikes me as likely. But - where someone like Leunig calls for rebalancing, and putting council tax down in bands A to C - I don’t see it. Tax just doesn’t work like that. The taxes that raise the real money - Income Tax and VAT - are ultimately paid by every full-time worker (and plenty of part-time workers) and every consumer (everyone) - although there will be some lunatic out there who bases their diet around what’s VAT free, I’m sure (hard to buy a pan to cook it in, but perhaps they’ve imported an air fryer from somewhere, who knows). Tax works when everyone pays it. Instead, perhaps freeze or be kinder to Bands A - C but put the rest up more. And put council tax up more in higher value areas, to make it more proportional. What did Dan Neidle of Tax Policy Associates propose for the banding changes? Band H split into H1 - H4 - H1 the current band H, H2 £2m+ being 50% more expensive than H1, H3 £4m+ being 100% more expensive than H1, and £8m+ being 200% more expensive than H1. Would it raise money? Sure. More political than anything though. The alternative - a percentage levy (a property tax) of e.g. 0.5% above £2m, rising to 0.7% above £4m and 1.1% above £8m. £10k per year extra on houses at £2m, as a bill - that would force quite a few transactions of older people in larger houses (or nicely located flats) in London, I dare say. I can see the Telegraph headlines already. How much are we talking about here? About a quarter of a billion. The sort of thing the Chancellor would do for political capital, not actual capital. Percentage overlays raise more like £1.5bn per year, but my goodness I think that would devalue some higher end property. An £8m house pays an extra £7,333 per month (out of taxed income, presumably) - about 15k per month at their marginal tax rate. Not a small amount of money. Lots of property owned 40+ years simply has to be sold with an element of urgency if that happens, I’d think (I mean there isn’t LOTS that exists over £8m) - but there’s definitely a one-off capital hit to homes above £2m if you go down this route, directly hurting their wealth. Not many will cry tears for them - I get that - and many tax justice campaigners and perhaps the likes of Gary Stevenson may well be delighted (having seen his flat in his podcasts, I’m sure that comes in over £2m and he will pay it with a smile on his face). Let’s be clear - at £8m+ you are likely talking about a few thousand homes. So it becomes a bit of a political exercise and the £1.5bn raised will inevitably come, the bulk of it anyway, from the lower bracket (£2m to £4m). That’s the way tax always works. Doesn’t matter, because you only live in a £500k house? Sure, but the bands expand and the system gets hungrier, year on year, because it spends more than it grows, in an unsustainable fashion. Council tax “reform”, of sorts, then? But with no-one actually better off (aside from the public purse…..) - that would be what I would expect to come out of this whole situation. Ticks the wealth tax box. Claims to raise £1.5bn. Sounds good all round at the moment. Wins some political points. What other reforms might we see on Council Tax? Updated valuations? “Extension tax”, effectively? That will only take about 10 years to implement and cost £400m or something silly - Wales spends £18m per 5 years on revaluations now, and England has nearly 20x the population of Wales. Or - use an AVM, and AI to supplement it - after all, that’s what the Government promised (sensible use of AI) - or should I stop giving them ideas now? Whatever direction, as Yazz said in this week’s quote - the only way is up when it comes to tax at the moment under this regime. Before I do close, don’t forget to book your SUPER EARLY BIRD tickets to the next Property Business Workshop that Rod and I are running on Wednesday 1st October in central London. This time around - investment metrics and how to run your property business at scale. My favourite topic of all! Book here: http://bit.ly/pbweight Above all - please remember to Keep Calm, ALWAYS listen to or read the Supplement, and Carry On; there will be opportunities abound this year and towards 2030 and beyond - the landscape has been set for a surefire bull run. It will be slow(ish), and take a little while longer to get off the ground - and the amount of stock around is still keeping things suppressed at the moment - but as yields currently continue to improve, it is a case of “here we go” in my opinion.

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