Reeves Weighs New Property Tax on Homes Worth Over £500,000

Published: 19 August 2025. The English Chronicle Desk

Chancellor Rachel Reeves is weighing up sweeping reforms to Britain’s property tax system that could see a new levy applied to homes worth more than £500,000. The Treasury is currently modelling the potential impact of what has been described as a “proportional property tax,” which could reshape how home sales and local council funding are taxed in the years ahead.

According to reports, Ms Reeves has instructed officials to examine how such a levy might be introduced and to consider its potential effect on revenues, housing market activity, and fairness across the regions. Ministers have already been briefed on the options being developed, with the possibility of announcements coming as part of this autumn’s Budget.

Under the proposals, one option would involve a national property levy replacing stamp duty for owner-occupied homes. This system would mean that, rather than buyers paying a one-off charge upon purchase, the levy would instead be paid by the seller when a property is sold, provided its value exceeds £500,000. In a second stage, a local property tax could eventually replace council tax altogether—a reform aimed at providing long-term financial stability for cash-strapped local authorities.

While no final decision has yet been taken, the Treasury has made clear that a national levy could feasibly be implemented within the lifetime of this parliament. However, more fundamental reform to replace council tax is expected to take longer and may ultimately hinge on Labour securing a second term in office.

The pressure on the chancellor to consider wealth-based taxation has been mounting in recent months. Labour’s deputy leader, Angela Rayner, has publicly urged Ms Reeves to take steps to ensure that property wealth is more fairly taxed. At the same time, the government is seeking ways to raise additional revenue without breaching its manifesto pledge not to increase the overall tax burden on working people.

The potential new tax would be calculated proportionally, based on the property’s value, and collected by HM Revenue and Customs. It would not apply to second homes, which would continue to fall under the existing stamp duty framework. Treasury analysis suggests the measure would affect around one in five transactions, far fewer than the 60 per cent of sales currently subject to stamp duty.

Figures from Nationwide show that the average UK house price in July stood at £272,664, well below the proposed £500,000 threshold. Even so, the reform could have a significant effect in higher-value markets, particularly in London and the South East. Stamp duty on primary residences currently raises around £11.6 billion annually, but receipts fluctuate depending on the housing market. Officials argue that a proportional property levy could provide a more predictable and stable source of income, eventually generating similar levels of revenue.

The proposals bear a strong resemblance to recommendations set out last year in a 48-page report by the centre-right think tank Onward. Authored by Dr Tim Leunig, a former government adviser involved in designing the furlough scheme during the Covid-19 pandemic, the report laid out a dual system of national and local proportional property taxes. Dr Leunig argued such a system would not only be fairer but would also encourage labour mobility, by reducing the cost of moving house.

“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,” Dr Leunig wrote. “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 debate is likely to intensify as the autumn Budget approaches, with campaigners and political opponents alike scrutinising Labour’s plans. For the chancellor, the challenge will be balancing the need for fiscal responsibility with the party’s promise not to impose heavier burdens on ordinary working families. Whether this new property levy becomes a cornerstone of Labour’s tax reform agenda remains to be seen, but it is already shaping up to be one of the most contentious issues of the year.