Reeves mulls ‘punishingly high’ new property taxes
Chancellor Rachel Reeves is considering replacing stamp duty with a new national property tax on homes above £500,000, according to fresh reports.
Senior ministers in the Treasury have been asked to study how a new “proportional” levy could be implemented and to model its impact ahead of potential tax changes in the Autumn Budget, The Guardian has revealed.
Officials are initially examining a national property tax, which would replace stamp duty on owner-occupied homes, sources said.
The tax would be paid by owner-occupiers on houses worth more than £500,000 when they sell their home, impacting around a fifth of the market.
Stamp duty, which is paid in bands tied to property prices, currently impacts around 60 per cent of the market and is considered to be a serious barrier to home ownership, particularly for first-time buyers.
The average price of a home in the UK was £272,664 in July, according to Nationwide. In London, the average price is around £550,000.
Chancellor under pressure to raise revenue
The possible new levy would similarly be determined by the value of the property, with the rate set by central government, which would then directly collect the proceeds via HMRC. It would not replace stamp duty on second homes.
The plans would provide a welcome way of raising revenue for Reeves, who has pledged not to raise taxes on working people.
The Chancellor has also been under pressure to introduce more wealth-based taxes, notably from the deputy prime minister Angela Rayner.
The National Institute of Economic and Social Research (NIESR) has estimated that taxes may have to go up by more than £50bn to cover costs and restore a credible headroom that will make bond traders more assured about Labour’s fiscal plans.
Capital Economics and other leading analysts believe taxes will have to rise in the range of £15bn to £25bn.
A HM 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.”
Stamp duty ‘unfit for purpose’
Simon Gerrard, chair of Martyn Gerrard Estate Agents, welcomed the possible end of stamp duty, but warned a national property tax could lead to asking prices soaring on properties above £500,000 as sellers offset losses.
“The existing Stamp Duty regime is unfit for purpose… it’s good to see that the Government has understood some of the issues and is taking action to end the broken system.
“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… Prices above £500,000 will skyrocket. The Government needs to think very carefully what the wider repercussions these changes might have and act carefully.”
The end of the stamp duty holiday for first-time buyers led to a significant slowdown in sales earlier in the year after buyers rushed to secure houses to avoid paying thousands in extra tax.