Reports suggest stamp duty may be replaced with a levy on homes worth more than £500,000, with London and South East owners hit hardest
Homeowners could face an annual property tax on homes worth more than £500,000 under radical Treasury plans to replace stamp duty, according to reports.
The autumn budget could include proposals for a proportional property tax, shifting the burden from one-off stamp duty charges to an ongoing annual levy. The move is being considered as Chancellor Rachel Reeves searches for ways to raise revenue and boost the efficiency of the housing market.
Stamp duty currently raises around £13.8 billion a year for the Treasury, but has long been criticised for discouraging people from moving. It applies at rates from 2 per cent on homes worth over £125,000, through to 12 per cent on the portion above £1.5 million.
According to proposals drawn up by the centre-right think tank Onward, households would pay 0.54 per cent annually on the value above £500,000, while properties worth more than £1 million would pay 0.81 per cent on the portion above that threshold.
Professor Tim Leunig of the London School of Economics, who first outlined the model, argued: “Stamp duty raises transaction costs, preventing people from moving for new job opportunities and undermining growth. The way Britain taxes households is both impractical and unfair.”
Onward suggested the new tax would not be applied retrospectively but only on properties bought after it was introduced. The 5 per cent surcharge on second homes would remain, with no additional annual levy for those buyers.
Separately, Leunig proposed scrapping council tax and replacing it with a local authority levy of 0.44 per cent on property values between £80,000 and £500,000 (capped at £2,196 annually). Someone with a £650,000 home, for instance, would pay £3,006 each year in combined council and property tax.
Analysts say the shift would likely reduce costs for the majority of homeowners, particularly outside London and the South East, but increase annual bills for owners of higher-value homes in wealthier areas.
Research by Hamptons shows London and South East properties would bear the brunt, as prices there have risen most sharply since council tax bands were last set in 1991.
The campaign group Fairer Share, which supports replacing stamp duty and council tax with a flat property levy, said the reported Treasury plans were a “step in the right direction”. Andrew Dixon, its founder, said:
“Removing stamp duty would lead to a more effective use of housing, making it easier for families to upsize or downsize. A modern property tax system would better reflect today’s real property values and spread the burden more fairly.”
Surveys suggest many older homeowners would consider moving if stamp duty were abolished. A Jackson-Stops poll found that 41 per cent of over-55s would downsize within two years if the tax were reduced or scrapped.
The Chancellor faces a £6.5 billion shortfall in the public finances, making property taxation reform a politically tempting lever. However, experts warn such a shake-up would be highly complex and could take more than one parliament to implement.
David Fell of Hamptons said the impact would “depend on how closely the government follows any recommendations” but noted it would likely cut upfront costs for expensive purchases while raising ongoing ownership costs.
For now, the Treasury has declined to comment, saying it does not respond to speculation ahead of the budget.