Radical new ways to tax property are reportedly being considered by the Treasury ahead of the next autumn budget as chancellor Rachel Reeves looks to bolster public finances.
Plans to overhaul stamp duty and council tax, as well as a “mansion tax” to cover the sale of high-value homes, are all on the table, sources have said in recent days.
Ms Reeves is understood to have asked officials to calculate how these new “proportional” taxes would work in the UK, all of which would aim to target wealth more directly.
The overhaul would see a national property tax replace stamp duty on owner-occupied homes. Council tax could also be replaced with a local property tax, helping to boost ailing local authority finances.
Another speculated plan would see capital gains tax payable by the seller on high-value properties. Under current rules, everyone is exempt from the levy when selling their primary residence.
Here’s how the plans would change the UK tax landscape.
How would the ‘mansion tax’ work?
In the UK, capital gains tax is payable on the sale of most high-value assets. This includes property, stocks and possessions worth over £6,000.
Under current rules, a homeowner does not generally need to pay capital gains tax on the sale of a property which has been their primary residence during the time they have owned it.
This would change under the proposed plans when the value of the property of the house being sold is worth £1.5 million or more, although this threshold is said to be under consideration.
The way capital gains tax works for property sales sees sellers required to work out the “gain” they have made on the asset. This is usually the difference between what they paid for the property and the amount they sold it for.
If this is above, or takes the seller above, their capital gains tax allowance – £3,000 every year – they will need to report and pay the tax.
For higher or additional rate income tax payers, the rate is 24 per cent. For those on the basic rate, it’s 18 per cent.
Several property experts have reacted negatively to the idea. Colleen Babcock, Rightmove’s property expert, said: “In essence, this would predominantly be a tax on the most expensive areas of London and the South East.
“The London market is already feeling the effects of taxation more acutely than other parts of England, and this is likely to deter some moves at the upper end.”
Meanwhile, Laith Khalaf, head of investment analysis at AJ Bell, said: “A mansion tax set at a high level would naturally cause people to worry it was just the thin end of the wedge, and the next time the government needs a bit of money they could just lower the threshold.”
What is stamp duty and how could it change?
Under current rules, stamp duty is a levy paid by the buyer of residential property, varying based on the price of the property and whether it is their first purchase.
The amount owed is slightly different depending on who is buying, as first-time buyers are given stamp duty relief and benefit from lower rates.
In 2023/24, the levy brought in £11.6 billion for the government.
The plans to replace the tax have reportedly drawn on the findings of a report from centre-right think tank Onward, published in August last year.
Their recommended policy would see a new tax introduced on the sale of a property when it is worth above £500,000. This levy would be proportionate to the property’s value, and paid at a rate set by HMRC.
It would be payable by the new owner of the property, only on the amount above £500,000. This would mean the owners of a property worth just over the threshold would pay a ‘trivial’ amount, according to the report.
Could council tax be replaced?
Another mulled concept would see council tax replaced with a new local property tax, complementing the ‘national’ property tax.
It will be a tax on property value paid by the owner, the Onward report explains, and at a rate set by each local authority.
This should be levied on values up to a cap of £500,000 in a bid to ensure that the richest areas are not able to set far lower rates than those with less valuable properties.
This would address a key criticism of the council tax system – that how properties are valued is unfair and inaccurate. The ‘band’ of council tax that all properties pay is based on values last evaluated in the 1990s, which have become drastically outdated in many places.
The local property tax concept would instead see tax liable on properties based on their value at the last point they were sold, meaning valuation would be regularly updated.
However, both of the proposed taxes have been criticised as a tax that will disproportionately hit people living in areas where property prices are higher.
The effect would be particularly acute in London, said chair of Martyn Gerrard Estate Agents Simon Gerrard, who told The Independent that it would amount to a “London tax”.
He said: “Rightmove’s latest figures for August show that the average price of a property in London is now £666,983. Upping taxes for properties over £500K is not making the wealthy pay their fair share, it’s a tax on ordinary Londoners.”
No final decisions have been made on the plans, and the government has not commented publicly on their veracity.
