IPTI | Property Tax in the News – March 2025

IPTI’s usual monthly newsletter – the “President’s Message” – contains, inter alia, some summarised news articles from around the world. This IPTI publication – “Property Tax in the News” – contains some of the more interesting news articles concerning property taxes in North America and Europe which is where many of our members have a particular interest. Links to these and more, similarly summarised, articles – from North America, Europe and around the globe – can be found in “IPTI Xtracts” on our website: www.ipti.org. Please note that these are news articles; they do not necessarily reflect IPTI’s views.

USA

Circuit Breakers Are a Better Option for Property Tax Relief

Property taxes are the backbone of state and local government budgets because they support public programs that keep communities educated, safe, and healthy. But as housing prices continue to rise across the country, a growing number of families are struggling with their property tax bills.

States like North Dakota, Iowa, Indiana, and Kansas, among a dozen other states, are looking at ways to alter property taxes. But too often, their proposals threaten to lose a lot of revenue without really reaching the people who most need help. These proposals focus on addressing the amount of property taxes levied, rather than ensuring families can afford their property tax bills. There is a better way.

To curb the impact of property taxes on working families, lawmakers should improve or implement a property tax circuit breaker program. The program works like this: when families are overloaded with their property taxes, the circuit breaker kicks in and helps alleviate the pressure these taxes put on family budgets.

A circuit breaker is the best form of property tax reduction because it addresses the main flaw of the system: the disconnect between property tax bills and ability to pay. If you lose a job, your income tax payments decrease accordingly – but your property tax bill does not change. Similarly, if you live on a fixed income, your property tax does not stop rising as your home’s value increases. But a circuit breaker can protect you by making your income a factor in how much you pay in property taxes.

A circuit breaker ensures that your property tax bill does not exceed a certain percentage of your income. When that does happen, the circuit breaker refunds you that amount, usually up to a certain cap.

Ideally, programs should be open to both homeowners and renters of all ages with benefits and maximum income levels indexed to inflation. But the actual design can be negotiated between legislators and their constituents.

This is a fairly popular solution across the country, with 29 states and Washington, D.C. all having some form of a circuit breaker. These programs can help make a state’s overall tax system more equitable.

A regressive tax code is where households with lower incomes pay a larger share of their income in taxes than higher income families. According to our Who Pays? report, of the states with the 10 most regressive tax codes, all fail to provide working-age taxpayers with a circuit breaker option.

While many lawmakers look to property tax policies like tax caps or homestead exemptions, these are not well-targeted to those least able to pay. Homestead exemptions are across-the-board cuts that provide tax cuts to everyone, but their universal nature helps wealthier residents and others who are not struggling to pay their property tax bill, failing to address the ability-to-pay issue that plagues the property tax system. These exemptions, unlike circuit breakers, also exclude renters; this is a big problem because landlords typically pass property tax increases along to their tenants, many of whom are low- and moderate-income families and are disproportionately people of color.

Tax caps are deeply problematic because they deliver the biggest benefits to the highest-value homes. That means they deprive governments of needed revenue, hurting their ability to invest in schools, first responders, and other services, while doing very little to help those whose family finances are most strained.

A circuit breaker addresses both of today’s biggest problems with the property tax – fairness and financial security – which makes it a better policy choice than homestead exemptions and tax caps.

Designed properly, a circuit breaker provides low- and moderate-income families of all ages, both homeowners and renters, with the ability to stay in their homes, while also providing governments with the revenue to invest in vital services.

While the housing market keeps booming and property taxes continue to rise accordingly, states and localities will continue to consider changes to their property tax systems. Using circuit breaker programs will provide the financial stability their communities and budgets need.

 

EUROPE

Spain: Plans 100% tax for homes bought by non-EU residents

Spain is planning to impose a tax of up to 100% on the value of properties bought by non-residents from countries outside the EU, such as the UK. Announcing the move, Prime Minister Pedro Sánchez said the “unprecedented” measure was necessary to meet the country’s housing emergency.

“The West faces a decisive challenge: To not become a society divided into two classes, the rich landlords and poor tenants,” he said. Non-EU residents bought 27,000 properties in Spain in 2023, he told an economic forum in Madrid, “not to live in” but “to make money from them”. “Which, in the context of shortage that we are in, [we] obviously cannot allow,” he added.

The move was designed to prioritise available homes for residents, the Spanish prime minister said.

Sánchez did not provide any more details on how the tax would work nor a timeline for presenting it to parliament for approval, where he has often struggled to gather sufficient votes to pass legislation.

His office described the proposed measure as a way to limit the purchase of homes by “non-resident non-EU foreigners”. In Spain, people are classed as non-residents if they live in the country for less than 183 days in a single year.

It added: “The tax burden that they will have to pay in case of purchase will be increased up to 100% of the value of the property, in line with countries such as Denmark and Canada.”

The Spanish government said the proposal would be finalised “after careful study”.

The total number of sales to foreigners, including people from inside the EU, makes up around 15% of the Spanish housing market – that’s 87,000 out of 583,000 sales in 2023 – according to the Spanish property registry.

 

Switzerland: System change in home ownership taxation

The Council of States and the National Council has decided to abolish the imputed rental value. After more than seven years of parliamentary negotiations, the councils agreed on a complete system change in the taxation of home ownership. In this context, parliament has also approved the creation of a constitutional basis for a cantonal property tax.

The two proposals provide for the following changes:

Abolition of the imputed rental value

Homeowners will no longer have to pay tax on the imputed rental value of their self-occupied primary and secondary residences or holiday homes, at either the federal or the cantonal and municipal level.

Extensive abolition of deductions for owner-occupied properties

Deductions for income-related expenses, i.e. maintenance expenses, costs for the renovation of newly acquired properties, insurance premiums and management fees, will no longer be allowed. The same applies to demolition costs in preparation for replacement construction. Deductions for investments in energy saving and environmental protection will be abolished at federal tax level. The cantons may continue to allow such deductions on a temporary basis until no later than 2050. Costs for conservation work on heritage properties will remain deductible at the federal level as before. The cantons may also continue to allow corresponding deductions.

The cantons are already authorised to levy limited property taxes. Following the abolition of the imputed rental value, they will have considerable leeway to impose higher property taxes on predominantly owner-occupied secondary residences in order to mitigate the anticipated tax shortfalls resulting from the abolition of the tax on the imputed rental value.

 

UK: Business Rates – What’s in store for businesses in April 2025?

Although we hoped Labour might fulfil its election manifesto – and introduce business rates reforms that would help to accelerate its “growth” agenda – so far, we don’t appear to be going in the right direction, writes John Webber.

One of Labour’s first actions which will come into effect from April 2025 is to remove the eligibility for charitable rates relief for private schools. About half of the 2500 private schools in England have charitable status and have been eligible for mandatory charitable rate relief of 80 per cent. Local Authorities can provide up to 20 per cent further relief. This removal will only bring in a small amount of money for the government –roughly £110 million a year – but could have a serious impact on the individual schools involved.

We estimate the change means around 1250 schools will face an increase on average of around £90,000 on their business rates. Some schools will face considerably more. On top of the imposition of VAT on fees in January, we estimate this could lead to a potential 30 per cent increase on fees from those schools from next September and for some parents (and schools) this won’t be sustainable.

This does look to be a case of bleeding the pips dry and disrupting education mid school year. We are working hard with a number of schools to effectively plan and manage their rates liability to make sure they don’t pay more in business rates than they have to.

The Government’s decision in the Budget last October to freeze the smaller multiplier but allow the standard multiplier to increase with inflation from 54.6p to 55.5 p, means that most businesses will see a multiplier at nearer to 60p than 50p reflected in their April 2025 increased rates bills.

The Government also announced it would be cutting retail/hospitality/leisure reliefs from the current 75 per cent discount on business rates bills to 40 per cent from April 2025, with a full removal in April 2026. This will mean many businesses, currently eligible for this relief, will see their business rates bills rise by a massive 140 per cent in April this year and for some even higher.

We estimate those smaller retailers, currently benefitting from relief will see their bills increase on average from £3,751 to £9,003 this year and restaurants will see a rise on average from £5,563 to £13,351. Pubs, nightclubs and gyms will be similarly affected.

There will be a big shock in March when the new bills fall on the doormat. And, with no other support this year, this could cause some businesses to go to the wall, particularly as the rise comes on top of other Government measures such as the rise in the NMW and employer national insurance contributions, all of which will harm the R/H/L sector. The Government does believe it is offering something to counter this loss of reliefs – with its plans to bring in lower multipliers for those businesses in the R/H/L sector with an RV of under £500 000 in April 2026.

New legislation to that effect is currently going through Parliament. However, it plans to pay for this by imposing a higher multiplier on all businesses with an RV above £500,000.

This again does not bode well for the high street as the higher limit will catch all of the main retailers who actually provide employment in the sector and may face a 20 per cent rise on their rates bills.

And the fact that there is a year between the loss of reliefs and the lower RHL multipliers being introduced seems to have escaped the Government’s notice! We worry about how many small businesses and jobs will be lost in the meantime.

April 2025 could therefore be a perfect storm – a headache for many businesses in terms of business rates, on top of the other pressures on them. We are continuing to lobby the Government calling for proper reform and will be supporting our clients navigate this over-complicated and onerous system.

 

UK: High street firms facing extra £1bn tax bill next month as relief slashed

Businesses in London will be hit hardest by changes, tax and software firm Ryan found. Firms in the retail, leisure and hospitality sector are facing increased costs in April when a discount on business rates will be reduced from 75% to 40%.

The changes were announced in last year’s autumn Budget, with the Government committing to keeping the discount scheme for the next financial year but cutting the level of relief. Each business will still have a maximum discount of £110,000.

Ryan’s analysis found that the reduced discount will raise an extra £1.03 billion from firms across England over the 2025-2026 tax year. Nearly a third of the extra revenue will come from businesses in London, who collectively are facing an additional £309.7 million in business rates. This is followed by an extra £157.9 million from businesses in the South East who are facing a bigger bill, and £110.5 million from firms in the North West.

Alex Probyn, a property tax expert at Ryan, told the PA news agency that it “comes on top of a tsunami of other rising costs, making it a complex and challenging environment” for businesses to operate in.

From April, national insurance contributions will also rise for some businesses, while they will also have to pay employees a higher national living wage.

The Government has said extra revenues raised from higher taxes on businesses will help fill a gap in the UK’s public finances and be plugged into things like infrastructure and the public sector.

It pledged in the Budget to introduce permanently lower business rates for smaller retail, hospitality and leisure firms from 2026.

The Government has also said that some 865,000 employers will not pay any national insurance in the year ahead because of the employment allowance rising from £5,000 to £10,500.

But Mr Probyn said the changes will “disproportionately affect small and independent businesses across sectors already struggling”. Average business rates retail, leisure and hospitality are set to jump by 140% over the coming tax year.

For the average shop, this means bills will spiral from about £3,589 to £8,613 for 2025-2026.

 

Compliments of the International Property Tax Institute (IPTI) – a member of the EACCNY