Residential property is the largest store of wealth in the UK, and has long been a target for those who believe homes should be taxed more. Real estate remains a juicy plum for Andy Burnham to pick as he searches for ways to pay for an overhaul of the social care system and higher defence spending, to name just two fiscal priorities. Yet how to tax property, or possibly the land it sits on, has vexed economists and politicians for centuries. Here we discuss the background to the debate and some of the tax options.
How is property taxed now?
Council tax, stamp duty land tax and capital gains tax (CGT) are the main taxes charged on English properties. All residents pay council tax based on the value of the home at 1991 prices and in a series of bands from A to H – while several extra bands are being added at the top end to enact Rachel Reeves’s mansion tax.
Property taxes in Scotland, Wales and Northern Ireland are under the control of devolved administrations, who apply different systems – in Wales, property valuations from 2003 are used.
Plus, landlords in the UK must pay income tax on rental profits, while companies pay business rates based on the rental value of their premises.
Together, the UK raises more from property taxation than any other country in the OECD. The Office for Budget Responsibility has estimated that council tax receipts will total £51bn in the 2025-26 financial year, plus £34bn from business rates, and £17bn from property transaction taxes (including stamp duty).
Like King William III’s window tax, council tax is widely considered to be a failure, or at least past its sell-by-date, leading to calls from politicians on left and right for it to be reformed or abolished.
It is a regressive tax, falling more heavily on low-value homes, and rates vary across the country.
Stamp duty applies to home sales and takes a bigger slice out of higher-value homes while many cheaper home sales are exempt, making it a progressive tax.
Second homes, which are owned by about 10% of main residency owners, are caught by stamp duty and capital gains tax (CGT) on the profit from a sale.
Why are there calls to reform property taxes?
UK residents owned about £5.5tn worth of property in 2022 after mortgages were deducted, and Burnham’s advisers have hinted that the PM is keen to capture some of this wealth via a single annual tax on property based on the wholesale reform of council tax and abolition of stamp duty.
It would be a monster task to revalue all homes in England, and the Valuation Office would need to hire many staff, though artificial intelligence is expected to be a huge support in this exercise.
Council tax’s critics argue that it damages the economy when people are deterred from moving to deprived areas with low house prices, but high levels of council tax. A band D council tax bill in Wandsworth this year is £1,028 while a home in the same band in Leicestershire must pay £2,528.75, just short of the highest band D of £2,625.43 in Dorset.
A single flat-rate tax based on land or property valuations would favour poorer areas. It would also provide the government with a regular income because it must be paid whatever the economic situation while stamp duty and CGT largely dry up during recessions, when fewer people are willing or able to buy.
What are the options?
Economists prefer a land tax because a levy on property deters owners from making improvements that would increase its value. He has also criticised property developers who delay using the land they own because there is no tax to pay until something is built. Land banking is a curse the prime minister wants to end.
A land value tax charged at 1.28% of the value, replacing council tax and residential stamp duty, would result in about two-thirds of households paying less, and a third paying more, Tax Policy Associates has calculated.
Dan Neidle, the firm’s founder, says under this scheme a band D home (average value of £358,000) would charged £2,551 compared with an average £2,267 council tax bill and a potential stamp duty charge of £7,933. A band H home would be the biggest loser. With an average value of £2.6m, Neidle says the occupier now pays £4,081, but under an LVT that would rocket to £30,534, though should they sell, a £200,000 stamp duty bill would be waived.
The scheme takes into account that top-end home values would fall, while the bottom end of the market would rise. Most of the extra charge would apply to London and the south-east with the addition of Trafford in Greater Manchester, Bath and other affluent areas.
Land tax proponents say that over time, the percentage rate can be increased, allowing politicians to abolish other taxes until such time as income tax and national insurance are swept away, with a land tax paying for everything.
Another option would be a proportional property tax – a single flat rate tax charged annually on a property’s value. The Fairer Share campaign have proposed this could be set at 0.48%, and doubled for second homes. Rachel Reeves reportedly examined the merits of replacing stamp duty with a “proportional” property tax in 2025.
A third possibility would be a beefed-up transaction tax – scrapping principal private residence relief (which allows main residences to escape CGT), and charging a levy on the capital gains when any property is sold, even if it was bought decades ago, when prices were much lower.
What are the objections to a new tax?
Practically, an overhaul of council tax would take years, and could be phased in from the top down. The Oxford academic Prof John Muellbauer has had talks with Treasury officials about applying a percentage to the value of top-end homes after the Valuation Office has completed the project begun by Reeves to underpin the mansion tax. Lower bands could be slowly updated from the 1991 numbers until all homes pay a percentage tax.
Older voters living in large, expensive homes might be unable to afford the higher charges under either a refreshed council tax or LVT scheme, but most economists say they could delay payment until their estate is sold.
Neidle says such concessions show how a large-scale conversion to LVT that involves scrapping stamp duty would trigger a significant drop in government income in the short term when the point is to raise more money.
But while there would be losers under changes to the property tax system, Fairer Share argues that a 0.48% proportional property tax would mean lower bills for most households while shifting the tax burden to higher-value properties and second homes.
How is property or land taxed in other countries?
In France, all home and land owners must pay the taxe foncière, a local property tax based on a “rentable value” of the property defined by location, building type, comfort and surface area. The occupier must also pay the taxe d’habitation, which is based on the rental value of the property as defined by the local authorities and Land Registry.
How likely is Andy Burnham to reform the system?
Last month the new prime minister ruled out an overhaul of property taxes in the next budget, due on 28 October. But this suggests he may “go large” with sweeping reforms in 2027, after Louise Casey has published her report on social care and the final bill to the state begins to emerge.
The Greens and Lib Dems could back a land tax. Lib Dem spokesperson Daisy Cooper said in parliament that her party was open in principle to the idea of taxing land rather than property.
Burnham may be wary of upsetting older voters, as the over-60s own more than half the UK’s housing equity. He could opt to fund whatever social care reforms emerge from No 10 with a 10% tax on all estates, which critics have called a “death tax”. It will face the same objections from wealthy property owners, illustrating how there are no easy answers for Labour.