Reeves Considers Replacing Stamp Duty With New Property Tax In Major Fiscal Overhaul

Senior Treasury officials are evaluating ambitious plans to replace stamp duty with a national property tax targeting homes sold for more than £500000. The proposal, being scrutinised ahead of this autumn’s budget, forms part of a wider potential reform spanning council tax and the way local authorities are funded. Sources indicate that Chancellor Rachel Reeves has tasked officials to model the effects of a new proportional property tax, while also planning the groundwork for a longer-term council tax overhaul.

The envisioned national property tax would apply to owner-occupiers selling homes valued at over £500000. Central government would set the rate, and HM Revenue and Customs would directly collect the proceeds. Unlike the current stamp duty system—which is paid by the buyer and affects about 60 percent of transactions—this new scheme would only impact around a fifth of property sales. Buyers of second homes would continue paying existing stamp duty rates.

Officials are also analysing options for an eventual local property tax to replace council tax, with the goal of addressing out-dated banding based on property values from the early 1990s. The average UK home price in July stood at £272664, meaning the primary effect would be felt in regions with higher property values, particularly London and the South East. Revenue from stamp duty on primary residences was £11.6 billion last year, but can fluctuate significantly with the housing market. The new approach is designed to create a steadier source of income for the Exchequer.

Political momentum for change is growing, fuelled by criticisms of stamp duty and calls for a fairer way to fund both national and local services. Treasury considerations are influenced in part by a report from centre-right thinktank Onward, which proposes a proportional property tax, assessed on property values rather than arbitrary bands. This would iron out long-standing regional and wealth disparities, with Dr Tim Leunig, co-author of the Onward report, stating that a terrace house in Burnley should not pay more than a mansion in Kensington.

As the government reviews how to redistribute council funding to better support local authorities in financial distress, proposals include a locally collected annual levy on properties up to £500000 in value. Owners would pay a minimum of £800 per year, with revenues going direct to councils. Labour’s deputy prime minister Angela Rayner has expressed support for greater redistribution, arguing that the current set-up entrenches inequalities between wealthy and poorer regions.

Reforming these property taxes is no easy task. Phasing in a national tax in place of stamp duty could occur within the current parliament, while a comprehensive council tax overhaul would likely require a second term in office. Any wealth-focused tax tends to provoke opposition from some quarters, but ministers appear prepared to face criticism in pursuit of what they argue are fairer and more sustainable public finances. As debates intensify ahead of the budget, property tax reform has leapt to the top of the political agenda.