Rachel Reeves, the Chancellor of the Exchequer, is exploring a proposal that could significantly reshape the country’s property tax system. According to reports from GBNews, the plan being considered involves replacing the current stamp duty on owner-occupied homes with a new national property tax.
This new tax would specifically apply to properties valued over £500,000 and would be levied when the property is sold, rather than at the time of purchase. The initiative aims to address ongoing concerns surrounding housing affordability while ensuring that the government’s tax revenues remain consistent and sustainable, avoiding significant shifts in the broader economy.
The Shift from Stamp Duty to a Proportional Property Tax
Currently, stamp duty applies to a wide range of property transactions, but it is most heavily felt by those purchasing higher-value properties. The proposed new property tax would apply to homes worth over £500,000. This means that only around 20% of property transactions would be impacted, in stark contrast to the 60% of sales currently affected by stamp duty.
The new property tax is designed to be “proportional,” meaning that the amount paid would depend on the value of the home. Homeowners would pay the tax when selling their properties, rather than when buying them.
This shift aims to make moving house more affordable, especially for those looking to relocate for work or to be closer to family. The tax would be collected through HMRC, simplifying the process for both buyers and sellers.
Although this is a significant change, it is believed to be fairer than the current system. Under stamp duty, the tax burden is not always proportional to the value of the home relative to the location. For example, a property in a less expensive area may end up paying more in stamp duty than a larger, more expensive property in central London.
This proposal seeks to address such discrepancies, ensuring that the tax burden is more aligned with the property’s value.
Tim Leunig, a former government adviser and author of research from the centre-right thinktank Onward, emphasized that the proposal would make moving house easier and cheaper. Leunig argued:
“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.”
Impact on Revenue and the Housing Market
One of the central aims of the new property tax is to raise revenue for the Treasury while maintaining fairness in the tax system. Last year, £11.6 billion were collected by the Treasury through stamp duty on primary residences, although this figure can fluctuate based on housing market activity.
Proponents of the new system argue that a national property tax would eventually generate similar revenue, while offering greater consistency and predictability.
The proposal, however, could have far-reaching effects on the housing market. As it would target properties above £500,000, it is likely to affect higher-end properties and, potentially, second homes.
Second homes would remain subject to the existing stamp duty arrangements under the proposed tax structure. The tax could reduce the incentive for property speculation and, in turn, curb inflationary pressures on the housing market. However, there are concerns that this could reduce liquidity in the market, especially for higher-value homes.
Given that the average UK property price was £272,664 as of July, according to Nationwide, most homeowners would not be impacted by the new tax. This would also alleviate some of the pressure on first-time buyers, who are often priced out of the market by rising stamp duty costs.
