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Increase charges on second homes in council tax revamp, report suggests

The current council tax system should be replaced with a progressive property tax that places surcharges on additional homes, a leading think tank has said.

In a report ‘A new generational contract’ published today by the Resolution Foundation, the think tank argues replacing council tax with a new taxing system will allow the millennial generation to get on the housing ladder.

Halving stamp duty rates, offering tax cuts on capitals gains and increasing tax rates on second homes are amongst the proposals the foundation believes will encourage multiple home-owners to sell to first-time buyers.

By increasing tax rates the think tank argues more than £2b can be raised, allowing greater funding for national health and social care.

The report said: “An ideal property tax would be both equitable and efficient, yet council tax – Britain’s main recurrent property tax which is collected by councils and used to fund their services – manages to be neither of these things.

“It is a highly regressive, regionally imbalanced, complex tax that is not fit for the 21st century.”

Out-of-date property valuations, the report claims, is one reason it is leading the calls for a revamp of the system that “falls particularly heavily on younger generations.”

This is largely due to the disparity of the taxing process. Higher-value home-owning areas being able to set a lower council tax has resulted in someone living in a property worth £100,000 in 2015-16 facing around five times the effective tax rate of someone living in a property worth £1m.

The foundation believe this turnover of the current system will allow younger generations to increase their chances of owning a home. It found that 85 per cent of households in their 20s in Great Britain lived in the bottom three council tax bands in 2015-16, a six per cent increase on those in their 20s 19 years earlier.

Consequently, the think tank suggests: “The council tax has become most generous to older households and most onerous for younger generations when measured as a proportion of property value.”

The report also produced several other key recommendations, including a £10,000 payment given to those at the age of 25, charging National Insurance on the earnings of those above the State Pension age and proposed an extra £2.3bn per year for the NHS to address health and social care for those over the age of 65.

The foundation’s chairman, Lord Willetts, said: “Society is held together by mutual dependence between generations. We have shown that generational progress has indeed stalled. Moreover, we face significant challenges providing the health and care that older generations expect.

“And we can promote asset ownership for younger generations so that owning a home and access to a decent pension are realities, not a distant prospect in 21st century Britain.

“The ideas we set out are not easy or comfortable. We are not expecting political parties to embrace them straightaway. But we have to tackle substantial long-term problems—they will not fix themselves

Image Credit: Joe Giddens

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