Rumours of a significant overhaul of the UK’s property tax system, expected to be announced in the Budget on 26 November, have caused unease in the housing market. Talk of replacing Stamp Duty Land Tax (SDLT) with a new annual tax on properties worth more than £500,000 has seen industry leaders urge caution. They warn that hasty reforms could unintentionally freeze market mobility and disproportionately affect certain regions.
Disproportionate effects on London
According to analysis from national property listing website Rightmove, nearly a third of residential properties for sale in England (30%) could be impacted by the rumoured annual property tax. In London, where property prices are significantly higher, 59 per cent of homes currently listed would fall into the proposed tax threshold of £500,000 or more. By contrast, in the North East, just 8 per cent of residential properties would be affected.
Property tax change disadvantages
Furthermore, Rightmove CEO Johan Svanstrom cautioned that such a change could destabilise transaction levels in key price brackets. For instance, residential properties priced at or just above the £500,000 threshold might become harder to sell. He also warned that any benefit to buyers from removing SDLT could be negated if sellers raised asking prices to offset their new tax liability. He noted: “The saving could be wiped out if sellers simply build some of the charge into a higher asking price.”
‘Another barrier to selling in London’
Estate Agency Benham and Reeves’ latest analysis supports Rightmove’s concerns. It found that 60 per cent of all for-sale listings in London are priced above £500,000 – twice the national figure. The firm warns that shifting the tax burden to sellers risks disproportionately affecting the capital. Director Marc von Grundherr commented: “In the capital, £500,000 does not buy a luxury home; in many areas it’s simply the baseline for an average property… This reform will not rebalance the housing market, it will simply add another barrier to selling in London.”
Suggestions that Chancellor Rachel Reeves could also introduce a mansion tax on homes valued over £1.5 million have also drawn criticism for adversely affecting London buyers. While such properties account for just over 1 per cent of national sales, in London they represent 11 per cent of current listings and 5 per cent of agreed sales so far this year. “A slower market can affect all types of movers… even if a tax is aimed at higher-value properties,” cautioned Svanstrom.
Potential benefits of scrapping SDLT revealed
Further analysis by Jefferies London shows that a shift to an annual owner tax at 0.54 per cent on the portion of a property between £500k–£1m and 0.81 per cent above £1m would take well over a decade to match current SDLT costs in the prime market, so could benefit London buyers.
For example, in Mayfair’s W1K postcode, where the average property price is £4.5 million, a buyer currently pays £453,750 in stamp duty. Under the rumoured new tax, the annual bill would be £31,050, meaning it would take over 14 years to reach the same total.
Despite the potential benefits, Jefferies London founder Damien Jefferies voiced his concerns: “Scrapping stamp duty would act as a significant incentive for homebuyers at all levels… but taxing property values annually sounds messy to say the least.”
Property tax reforms must not risk market mobility
Adding further opinion on the rumoured property tax changes, Svanstrom said: “It’s encouraging that changes to stamp duty are being considered as there are many ways the current system can be improved or made fairer. The key question is whether these changes would actually generate more income for the government. It depends on the designs of reforms for taxes and fees, as well as the rates, but if they reduce mobility through these changes, they risk having the opposite effect and losing out in the long run.”
Other property tax changes rumoured to be considered by the Treasury include introducing national insurance for landlords, adding capital gains tax on the sale of one’s main home and replacing council tax. Although the Treasury hasn’t commented on specific rumours, it’s clear it needs to raise funds somehow.
