1. Early origins and embryonic form
- Hearth tax period: In the mid-17th century in England, there was a ‘hearth tax’, which can be regarded as one of the early forms of property taxation in London. The tax was levied on the number of cookers owned by a household, with the main purpose of providing relief for the poor. This form of taxation was relatively simple and direct, but there were some irrationalities because the number of cookers could not reflect the wealth status of a family or the value of the property completely and accurately.
- Window tax stage: later on there was a window tax, where the higher the number of windows in a house, the higher the tax. This resulted in many ordinary people sealing off some windows in order to pay less tax, while only the really rich dared to keep a larger number of windows. To a certain extent, this tax method reflected the government's exploration of property-related taxes at that time, but it was equally lacking in science and fairness.
2. The establishment of the modern property tax system
- Formation of council tax: Over time, council tax in the modern sense of the word, also known as ‘household tax’, was gradually formed. It is a tax levied on the ownership of a home and is payable by the owner of the home. There are 33 boroughs within the Greater London area and the rates vary slightly.
- Determining the tax base: All homes in the UK are divided into different bands based on their market value. In England, Scotland and Northern Ireland, the value of each dwelling in April 1991 is classified into eight bands A-H, and in Wales the value of the dwelling in 2003 is classified into nine bands A-I. Subsequent builds are categorised according to the prices of the two base periods.
- Flat rate versus tiered tax: The council tax rate model uses a flat rate, based on a Band D dwelling, with the other bands being taxed at a percentage or multiple of Band D respectively. This tiered approach to taxation takes into account, to a certain extent, the differences in the value of different properties and is relatively more equitable and reasonable.
3. Significant adjustments and changes over the past decades
- Adjustments in Stamp Duty:
- Changes in tax rates: Stamp duty is an important part of property taxation in London. The rate of stamp duty has been adjusted many times in the past decades. For example, in order to regulate the property market, the government has increased the stamp duty rate on high priced properties, which has increased the transaction costs for home buyers. Especially for properties with higher selling prices, the percentage of stamp duty payment was significantly increased in order to curb speculative purchases and the excessive rise in property prices.
- Changes in the scope of taxation: Initially, only individual property purchases were subject to stamp duty, while company purchases were not subject to tax. However, the policy has since changed, and companies purchasing houses are not only required to pay up to 15 per cent stamp duty, but also to pay property tax annually according to the value of the house. This change in policy has increased the cost of holding property for companies and has had an impact on the commercial property market.
- Changes to the taxation of luxury property:
- Increase in tax rates: London's property tax policy has long been characterised by a ‘hate the rich’ approach, which has resulted in a heavy tax on luxury properties. Over the past few decades, the tax rate on higher-value properties has risen, for example, the tax rate on homes worth more than £10 million ($16 million) is several times higher than the tax rate on ordinary homes. The aim of this policy is to balance the wealth of society while also raising tax revenue for local authorities.
- Adjustment of the starting point: Although the tax rate for luxury homes is constantly rising, the starting point for property tax is not always fixed. The government will adjust the starting point according to factors such as economic development and property market conditions to ensure the reasonableness and effectiveness of the tax policy.
- Changes in tax incentives:
- Preferences for specific groups of people: In the past, some specific groups of people, such as low-income earners and full-time adult students, could enjoy tax subsidies or reductions. However, with the passage of time, the scope and intensity of these concessions may be adjusted according to the government's fiscal position and policy direction.
- Concessions for first-time buyers: In order to encourage first-time buyers, the government has introduced some stamp duty concessions for first-time buyers, such as lowering the stamp duty rate for first-time buyers or setting a certain amount of exemption to help young people enter the property market more easily.
- Changes in linkages with other tax policies:
- Linkages with capital gains tax: capital gains tax is a tax on gains from the sale of assets, and in the property sector, only buy-to-let investment properties are subject to it. The rates and scope of capital gains tax have also evolved over the last few decades and there are some linkages with property tax policy. For example, expenditure on a property that has been renovated and improved can be used for tax deductions, which affects both the amount of capital gains tax paid and, to a certain extent, the homebuyer's decision to invest in the property.
- Relationship with inheritance and estate taxes: Inheritance and estate taxes are taxes levied on property gifted to children or others, and are also somewhat related to property taxes. Over the past few decades, the thresholds and rates of inheritance and legacy taxes have been adjusted, which indirectly affects the cost of holding and passing on property.
London property tax has been adjusted and improved throughout its history and has undergone a number of significant policy changes over the past few decades, reflecting the government's intention to regulate the property market and its pursuit of social justice.
