`Labour will be taxing your home next year'

THE GOVERNMENT'S subsidy of UK home ownership will become a net tax for the first time next year, according to research out today.

The abolition of mortgage interest tax relief (Miras), rises in stamp duty and falling income support payments mean that the net subsidy of pounds 2.5bn paid by the government to UK homeowners in 1997-98 will become a net tax of pounds 140m from April 2000.

This corresponds to a net tax per household of pounds 8.50, according to analysis conducted by ROOF magazine's Housing Market Healthcheck, and follows years of gradual erosion of the home ownership subsidy.

In 1992-93, UK homeowners received net payments from the government of pounds 6.1bn, with MIRAS payments - which totalled pounds 5.2bn - accounting for the bulk of the pay-out. ROOF magazine's analysis demonstrates that just five years later, Miras payments had almost halved to pounds 2.7bn, and net payments to homeowners had fallen by almost a third.

By April 2000, the changes introduced in the last Budget - which scrapped Miras and increased stamp duty for homes worth more than pounds 250,000 - will mean that householders are paying the Government for the privilege of owning a home.

Tim Dwelly, editor of ROOF Housing Market Healthcheck, warned that the trend towards rising taxes for UK homeowners was set to continue. The abolition of Miras and the transfer of interest rate control from the Treasury to the Bank of England mean that the Chancellor will be unable to rely on traditional instruments of control in times of housing boom.

As a result, according to Mr Dwelly, the Treasury may be forced to resort to further increases in stamp duty and new methods of taxation, such as the imposition of VAT on new greenfield homes and ending the exemption from capital gains tax.

Mr Dwelly said: "Cheap European-style mortgage rates come with a price. More affordable borrowing could lead to boom conditions. With no control over interest rates and no Miras left to cut, the Treasury may have to use tax to control overheating. If this happens, it is essential that low income owners are protected".

Higher taxes on the housing market are relatively common within the euro- zone, ROOF magazine said.