Reeves considering new property tax on houses worth more than £500,000
Chancellor Rachel Reeves has asked officials to study how a new 'proportional' property tax could be introduced and to model its impact ahead of this autumn's budget. Ministers have already been briefed on the proposals, which could be rolled out during this parliament, The Guardian reports.
Under one option, a national property levy would replace stamp duty on owner occupied homes. In the medium term, a second stage could see a local property tax replace council tax, a move designed to repair the finances of struggling local authorities.
No final decisions have been made. Treasury sources stressed that while a national levy could be implemented in the coming years, reform of council tax would take longer and would likely depend on Labour winning a second term.
The review reflects growing pressure on the chancellor to introduce more wealth based taxes. Labour's deputy leader, Angela Rayner, has urged Ms Reeves to consider measures that target property wealth. Ms Reeves is also under pressure to raise additional revenue without breaking Labour's pledge not to increase taxes on working people.
If adopted, the new levy would be paid by owner occupiers when they sell a home worth more than £500,000. The amount would be based on the value of the property, with the rate set centrally and collected by HM Revenue and Customs. It would not replace stamp duty on second homes.
The average house price in the UK stood at £272,664 in July, according to Nationwide. Current stamp duty receipts from primary residences vary significantly depending on the housing market, raising £11.6 billion last year. Treasury officials believe a national property tax would be a more stable source of income and would eventually raise a similar amount.
Unlike stamp duty, which currently applies to around 60 per cent of home sales and is paid by buyers, the new levy would affect only about a fifth of transactions.
The proposals are informed by a 48 page report published last year by the centre right think tank Onward. Written by Dr Tim Leunig, a former government adviser who helped devise the furlough scheme during the Covid pandemic, it set out a dual national and local 'proportional property tax' based on property values.
Dr Leunig wrote: 'These proposals would make it easier and cheaper to move house, for a better job, or to be near family, as well as being fairer. It should not be the case that a terrace house in Burnley pays more than a mansion in Kensington – and it wouldn't be under these proposals.'
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