Chancellor Rachel Reeves is reportedly considering introducing a new tax on the sale of homes worth more than £500,000, a move experts say risks further slowing down the London market.
Treasury officials have been asked to initially examine the potential for a national property tax, which would replace stamp duty on owner-occupied homes, sources told the Guardian.
They will then be looking into whether a local property tax could replace council tax in the medium term. The goal of the council tax reform would be to help bolster local authority finances, though no final decisions have been made. The Chancellor will unveil any changes to the Government’s tax policy at a fiscal event, such as a budget. The date for the 2025 Autumn Budget has yet to be announced but it is likely to be in late October or early November.
Half of all home sales over £500,000 are in London, with a further 26 per cent in the South East, according to analysis of Land Registry data by property company Hamptons.
“There is a risk that such a proposal slows down the market to a greater extent in London, the economic epicentre of the country,” says Tom Bill, head of UK residential research at Knight Frank.
While assessing the exact impact of a new tax is difficult without comparing exact rates, in principle, Bill adds, “removing barriers to social mobility like stamp duty is a positive move”.
“But you wouldn’t want to rely on the most discretionary part of the property market for a consistent flow of tax revenue as this proposal suggests.”
Richard Donnell, Executive Director at Zoopla, welcomes the potential changes as much needed to encourage movement in the market in the long term, but acknowledges they could cause problems in the short term.
“Everyone would welcome the removal of stamp duty, it is a hugely inefficient tax that acts as a major drag on the housing market, discouraging people from moving and downsizing.”
However, he adds, the proposals would bring “a lot of short-term disruption and uncertainty to the market with the risk of cliff edges appearing around any value thresholds. The longer term opportunity is to get more people moving home which will help support economic growth and labour mobility.”
Nicholas Mendes, a manager at John Charcol Mortgages, says Londoners will feel the impact of footing the bill for the reforms. “Because stamp duty raises more than £11 billion a year, and most of it comes from London and the South East, higher-value homes in the capital will inevitably shoulder much of the new burden.
“That raises political as well as practical questions, with Londoners likely to feel they are footing the bill for reforms that benefit other regions. Sellers of prime property may look to accelerate moves ahead of reform or risk becoming locked in by a bigger liability later.”
What could it mean for London buyers?
London’s struggling first-time buyers may welcome an end to stamp duty tax, although experts point out that the capital’s high prices and insufficient numbers of affordable new homes are more significant barriers to buying.
“It could be good news for first-time buyers who already have their affordability stretched to the limit,” says Will Vaughan, director at estate agents House Collective. “Taking stamp duty off their plate could help them get a foot on the ladder sooner — which is no bad thing given how hard it is for them in some markets.”
Nina Harrison, buying agent at Haringtons UK, agrees the policy will look appealing for first-time buyers. “But in reality, particularly in London, it’s sky-high prices rather than the tax bill that keep them locked out.”
“A £500,000 threshold sounds generous, but in London and the South East that barely gets you a modest two-bedroom flat. Families trying to trade up into houses would shoulder the burden, effectively subsidising the rest of the country.”
“Far from freeing up the market,” she argues, “this proposal could gum it up even further — slowing the housing ladder to a crawl, with London and the South East the most impacted.”
Vaughan agrees the policy is likely to create inertia in the market. “The truth is this risks further paralysing transactions. Instead of freeing up housing stock, it could encourage owners to sit tight and wait — which means fewer homes available, less mobility, and even more frustration for buyers.”
“Future planning is another issue,” says Geoff Wilford, founder of estate agency Wilfords London. “Even if sellers are exempt because they’ve already paid stamp duty on the way in, buyers will be thinking ahead. Renovating and extending is costly, and families know that when they eventually move again, they could be the ones footing the tax bill. That uncertainty could weigh heavily on decision-making.”
What could a new tax mean for London sellers?
Shifting the tax burden from buyers to sellers risks creating more problems than it solves, highlights Harrison. Home owners may decide to put off moves, which means less choice for buyers and distorted prices.
“Downsizers — already reluctant to leave the family home — would be even less inclined to move if it triggered a hefty tax bill. At the same time many upsizers would simply stay put and extend, even with today’s soaring construction costs, meaning fewer ‘starter homes’ coming back onto the market.”
“What’s really needed,” Harrison says, “is a lower, flatter rate that applies across the board. If moving became less punitive, transaction volumes would rise — and with more people moving, the Treasury would likely raise more money, not less.”
Vaughan agrees that discouraging downsizing in the current market could be a problematic consequence of the new policies. “Moving stamp duty from buyers to sellers might sound clever, but it could be a recipe for trouble.
“Yes, sellers usually have more equity — but hit them with a big tax bill and you’ll kill off the very downsizing moves the market desperately needs. If granny and grandpa won’t budge now, they certainly won’t when the government wants a slice of their proceeds.”
Wilford provides an example: “In South West London, where there are only a finite number of family houses and demand is driven by school catchments, the risk of a logjam is very real.
“If empty nesters are disincentivised from downsizing by a seller’s tax, those homes simply won’t come back onto the market. Families needing to upsize into catchment areas will be stuck, and the ripple effect will freeze chains further down the ladder.”
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