Mooted reforms to Britain’s property tax system could see stamp duty and council tax replaced
The Government is reportedly weighing one of the most significant changes to property taxation in decades, with Treasury officials asked to model plans for a new national levy on homes worth more than £500,000.
The measure could replace stamp duty on most sales and, in time, pave the way for council tax to be scrapped.
No official decisions have been taken, but, according to The Guardian, ministers will consider the proposals in the run-up to the Autumn Budget.
If adopted, the shift would alter how billions are raised for public services and determine who shoulders the heaviest burden in the housing market.
Will stamp duty be replaced?
Stamp duty has long been criticised as a “transaction tax” that distorts the housing market, with critics arguing that it discourages people from moving, penalises first-time buyers and reduces mobility for older owners who want to downsize.
Treasury officials are reportedly exploring introducing a new property tax to replace stamp duty. According to The Guardian, the national levy would apply to owner-occupiers when they sell a home valued above £500,000.
Unlike the current system, which covers about 60 per cent of transactions, the new tax would touch only around 20 per cent. Rates would be set nationally and collected by HMRC.
Crucially, second homes would still be subject to the 5 per cent surcharge under the existing system but would not face the new levy. That means the bulk of the change would fall on owner-occupiers selling high-value properties.
Stamp duty generated £11.6bn in the last financial year, but its yield fluctuates depending on the housing market. By contrast, officials are said to believe a proportional property tax could provide a more stable income stream while narrowing the scope to higher-value sales.
Will council tax be scrapped?
Alongside replacing stamp duty, ministers are also said to be considering proposals to scrap council tax altogether.
Introduced in 1993, council tax is still based on 1991 property values and has been described by the Institute for Fiscal Studies as “flawed and out of date”.
Leunig, who authored a 2023 report for the think tank Onward, suggested abolishing council tax and replacing it with an annual property levy linked directly to house value.
Under his model, households would pay 0.44 per cent on the value of their home between £80,000 and £500,000, capped at £2,196 a year, plus 0.54 per cent on the portion above £500,000.
For example, a family in a £650,000 property would pay the maximum £2,196 to their local authority, plus another £810 to the Treasury – a total of £3,006 a year.
Homes worth more than £1m would face an additional 0.81 per cent charge on the value above that threshold.
Unlike stamp duty, this would be an annual charge, meaning the impact would be felt year after year rather than at the point of purchase. To soften the blow, Leunig proposed the system would not apply retrospectively: only those buying after its introduction would be liable.
Who would pay more – and who would pay less?
If the reforms went ahead in full, the biggest winners would be house buyers in cheaper parts of the country.
By removing stamp duty on most transactions, the Treasury would cut upfront costs for the majority of buyers outside London and the South East.
Council tax reform would also benefit households in lower-value areas that currently face relatively high bills. Under the new system, their annual payments could fall sharply.
The heaviest costs would fall on owners of higher-value properties, particularly in London.
A household with a £1.5m home, for instance, would face thousands of pounds in annual charges, far more than under the present council tax system.
Why would a new property tax matter politically?
The Government faces intense fiscal pressure due to higher-than-expected borrowing, weak growth, and the cost of the U-turn on welfare cuts.
The Chancellor is now faced with finding additional revenue to plug these gaps in the public finances without breaking Labour’s promise not to raise income tax, national insurance and VAT.
There is no clear consensus on how much she will need to raise at the next Budget, with figures ranging from £10bn to over £40bn.
By focusing on property wealth, a proportional tax could raise revenue from higher-value homes without hitting wages.
When will this happen?
Treasury officials are reportedly continuing to model the impact of different designs, with ministers expected to review proposals before the Autumn Budget.
If they decide to go ahead, a national property tax could be legislated for within this parliament. However, due to its complexity, the replacement of council tax is likely to be deferred to a second Labour term.
A Treasury spokesperson told The Guardian: “As set out in the Plan for Change, the best way to strengthen public finances is by growing the economy – which is our focus.
“Changes to tax and spend policy are not the only ways of doing this, as seen with our planning reforms, which are expected to grow the economy by £6.8bn and cut borrowing by £3.4bn
“We are committed to keeping taxes for working people as low as possible, which is why at last Autumn’s Budget, we protected working people’s payslips and kept our promise not to raise the basic, higher or additional rates of Income Tax, employee National Insurance, or VAT.”
