A plan for a new tax on the sale of homes worth more than £500,000 is being considered by the Treasury as part of a possible overhaul of stamp duty and council tax.
Officials have been told to study how a “proportional” property tax could work, according to The Guardian, as Rachel Reeves prepares to raise taxes in the autumn Budget.
Part of the work could look at how a national tax could replace stamp duty – a tax paid on home purchases – for owner-occupied homes.
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Treasury officials will also look at how a local property tax could replace council tax, the report claims.
Council tax is currently paid by occupants based on the value of their home going back to 1991, but many campaigners have called for it to be replaced, because it is based on outdated valuations.
“Values of different properties have changed very differently since council tax was introduced – on average increasing more than twice as much in London as in the North East, for example – yet the tax has not changed to reflect that,” explained the Institute of Fiscal Studies in a 2020 paper on reform to council tax.
The Guardian said the property tax – which would be paid by owner-occupiers rather than buyers on houses worth more than £500,000 when they sell their home – could be implemented in the coming years.
Though it said an overhaul of council tax could take to beyond 2029, when Labour’s first term in office is over.
The Fairer Share Campaign has called for the abolition of council tax for years.
It proposes scrapping council tax entirely, along with other property taxes, and switching it for a 0.48 per cent flat tax on the current value of your property.
Although no final decisions have reportedly been made, it follows on from a report made by the centre-right think tank Onward in August last year.
The think tank proposed a national and local “proportional property tax” on property, based on its value.
The report was written by former government advisor Tim Leunig.
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.”
The proposed changes come as Chancellor Rachel Reeves is tasked with finding revenue to fill a black hole in the public finances.
Without finding extra cash, almost all forecasters predict that the Chancellor will miss hitting the financial rules that govern her tax and spending decisions.
As part of this, there has pressure from some quarters to introduce wealth taxes, which tax people’s assets rather than their earnings.
Property taxes could be considered by some to be similar to a wealth tax.
A Treasury spokesperson said: “As set out in the Plan for Change, the best way to strengthen public finances is by growing the economy – which is our focus. Changes to tax and spend policy are not the only ways of doing this, as seen with our planning reforms, which are expected to grow the economy by £6.8bn and cut borrowing by £3.4bn
“We are committed to keeping taxes for working people as low as possible, which is why at last Autumn’s Budget, we protected working people’s payslips and kept our promise not to raise the basic, higher or additional rates of Income Tax, employee National Insurance, or VAT.”
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