Government considering new property tax to replace stamp duty

The Treasury is weighing plans for a new levy on property sales above £500,000, as part of a broader shake-up of stamp duty and council tax.

Sources told the Guardian that senior ministers have instructed officials to explore how a “proportional” property tax might work and to model its impact. 

Initial work is focused on the creation of a national property tax that would replace stamp duty on owner-occupied homes. In the longer term, officials are also examining whether this system could pave the way for a local property tax to replace council tax, providing fresh revenues for struggling councils.

It has also been suggested that the new tax could be paid by the seller, rather than the buyer.

According to those familiar with the discussions, a national property tax could be introduced during the current parliament, while any overhaul of council tax would take longer to deliver and would likely depend on Labour securing a second term.

Under the proposals, the new tax would be charged when owner-occupiers sell homes worth more than £500,000, with rates set by central government and collected by HM Revenue and Customs. The measure would not apply to second homes, which would continue to face existing stamp duty rules.

Officials are considering a phased approach to implementation, with different options on the table for easing the transition away from the current system.

Only about one in five property sales would be affected by the proposed levy, compared with around 60% under today’s stamp duty thresholds.

Simon Gerrard, chairman of Martyn Gerrard Estate Agents, commented: “The existing stamp duty regime is unfit for purpose and has had a chilling effect on the housing market, which is why I’ve long campaigned to reform it. It’s good to see that the government has understood some of the issues and is taking action to end the broken system. Adding further costs to purchasing a home has only reduced transactions, stifled upward mobility and prevented the efficient functioning of the housing market. This new tax would be paid by the seller, rather than the buyer which means that it won’t be the same tax on aspiration that stamp duty currently is.

“However, it’s clear that the government is motivated by a desire to raise revenues and I’m concerned that this new tax is going to be punishingly high. If that’s the case, you’re going to see a ceiling at the £500,000 threshold for that band of the market, as people avoid falling under the regime, and then a significant jump in values with nothing in between. Prices above £500,000 will skyrocket as sellers account for the losses caused by the tax, that used to be paid by the buyer.

“What most worries me is the effect on families in London. The housing market is far higher in London, which means any family home will be impacted by this new tax. If prices surge higher because of this new regime, how will anyone in the capital start a family? The government needs to think very carefully what the wider repercussions these changes might have and act carefully. So far many of its attempts at raising revenues through tax, such as the stamp duty changes earlier this year, have backfired.”

Daniel Austin, CEO and co-founder at ASK Partners, said: “The Chancellor’s proposal to impose a new tax on homes sold for over £500,000 is a short-term fix that would do little to close the gap in public finances, stabilise the property market, or support long-term economic resilience and growth.

“If implemented, the tax risks creating an artificial ceiling on many properties around the £500,000 threshold. While this may seem like a positive development amid the current housing crisis, most first-time buyers do not enter the market at this level, and because housing operates in an upward chain, the impact would reverberate across all price points. In London, where the average home now costs nearly £700,000, the measure would hit families hardest, incentivising sellers to increase prices further in order to absorb the tax burden.

“The Government is right to review the current system which does constrain the market. However, as I outlined in my recent letter to the Chancellor, the solution is not more taxes – it’s building more homes to increase supply and unlock market mobility.”

Steph Walker, co-founder of TAUK, added: “Any reform of property taxation should be judged on whether it makes the system simpler and fairer for ordinary buyers and sellers. Stamp duty is widely seen as outdated and a barrier to people moving home, so exploring a more proportionate property tax is a welcome step in the right direction. Above all, the aim should be to make moving as straightforward and accessible as possible for everyone in the market.

"While the detail will be important, it’s encouraging to see the government actively considering change.

"What the market needs most right now is stability, clarity, and a tax system that reflects the reality of housing in 2025 and beyond.”