Plans for a new tax on the sale of homes worth over £500,000 are reportedly being considered by the Treasury, potentially marking a major change to the stamp duty and council tax system.
Ahead of the autumn Budget, chancellor Rachel Reeves has asked officials to calculate how a new “proportional” property tax would work in the UK.
The overhaul would see a national property tax replace stamp duty on owner-occupied homes, sources told The Guardian. Council tax could also be replaced with a local property tax, helping to boost ailing local authority finances.
The plans have reportedly drawn on the findings of a report from centre-right think tank Onward, published in August last year, which lays out criticism of stamp duty and council tax, and steps to replace them.
Here’s how the plans would change the UK tax landscape:
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.
Since April, first-time buyers have had to pay stamp duty when purchasing a home worth up to £300,000 thanks to ‘stamp duty relief’. After this they will pay five per cent on the remaining amount, up to £500,000. Anything above this and the relief is voided.
For anyone buying a second home, there is no stamp duty paid on the first £125,000, increasing to two per cent up to £250,000, five per cent up to £925,000, ten per cent up to £1.5m, and twelve per cent on everything above that.
In 2023/24, the levy brought in £11.6 billion for the government.
The speculated change would see this system change, introducing a new tax 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.
This 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, Onward’s report claims.
Could council tax be replaced?
Another mulled concept would see council tax replaced with a new local property tax, complimenting 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 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 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 says Simon Gerrard, chairman of Martyn Gerrard Estate Agents, 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.
