The Chancellor is considering plans to shake up Stamp Duty and council tax with the introduction of a new tax on the sale of homes worth over £500,000.
Rachel Reeves has asked officials to look at the impact of a new “proportional” property tax and how it could be introduced ahead of the Budget in the autumn. Ministers have been made aware of the proposals which, if implemented, could be introduced during this parliament.
One option would see a national property levy replace Stamp Duty on owner-occupied homes, as well as a second stage, which could see council tax replaced by a local property tax in a move to improve the finances of struggling local authorities.
The Treasury says that no final decisions have been made, and that while a new national levy could be introduced during this parliament, council tax reform would likely depend on the Labour government winning a second term.
The chancellor is facing growing pressure to introduce more wealth-based taxes, with housing secretary and deputy leader, Angela Rayner, urging Reeves to look at measures targeting property wealth.
If introduced, the levy would apply to sales over £500,000, with the amount paid based on the value of the property and following a centrally set rate, collected by the HMRC.
Current Stamp Duty receipts can vary significantly with the housing market, but last year raised £11.6billion. The proposed national property tax is seen by Treasury officials as a more stable source of income that would, in time, raise a similar amount.
The new levy would apply to around a fifth of house sales, compared to Stamp Duty, which currently applies to around 60%.
The proposed changes have been informed by a report from think tank, Onward, which was written by Dr Tim Leunig, a former government adviser who played a part in devising the furlough scheme during the pandemic. The report sets out a dual local and national proportional property tax that would be based on property values.
In the report, 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.”
