Property tax to replace stamp duty: Rachel Reeves' 2025 plan

After a summer of blisteringly hot days, there is a distinctly autumnal turn to the atmosphere, which means the Chancellor's Autumn Budget is just around the corner, while the political parties begin organising their annual conferences where they will throw about ideas that they hope will land successfully with their supporters.

The problem for any party of any particular colour or political leaning is how to get a handle on and manage the public finances. It's true that the Covid pandemic and the subsequent lockdowns left a big hole in the national debt, while successive budgetary decisions have had their impact, too, which means solutions have to be increasingly inventive.

This is one of the reasons why much has been made in the press about how Chancellor Rachel Reeves is reported to be considering the replacement of stamp duty with a new property tax. If that comes to fruition, how would it work?

Whoever is in power at Number Ten, there is a wealth of public projects and actions which must be paid for by a variety of means, the most obvious being taxation. No party wants to raise taxes if they possibly can avoid it, because such action will be unpopular with the population at large and therefore impede the likelihood of that party staying in power.

With Labour being the current holders of the keys to Number Ten, their ethos is to aim taxes at the richer members of society to help those who are less fortunate, who would be taxed at a much lower level, if at all.

This is why, traditionally, income tax is incremented so that you are taxed more as you hit each successive threshold. In the same way, value added tax (VAT) receives more in the tax for more expensive items (purely because the price is higher even though the tax is a flat rate across the board for easier administration because you are more likely to buy expensive items if you have more cash).

Which brings us on to Stamp Duty, which is the current tax on the purchase of homes in England, and Land Transaction Tax, which achieves the same result for those buying in Wales.

Buying a home has become increasingly more difficult for those who are just embarking on the road to home ownership. In part, it's because the cost of houses has increased considerably over the years, outstripping the rate at which the average wage or salary has gone up. Coupled with the increasing cost of renting a property, trying to save up the money for a deposit for a mortgage seems to be an ever-moving target, with dwindling amounts available for saving.

Successive governments have come up inventive ways of helping first-time buyers as a group, including a stamp duty holiday on purchases up to a certain amount, which saw many rushing to beat the deadline before the original thresholds were reapplied at the beginning of this year.

The problem is now greater than ever, with existing homeowners deciding on whether they can really afford to move.

The standard progression is for a first-time buyer to purchase their property and get a step on the first rung of the property ladder. As they progress up the ladder in their chosen occupation, they receive wage increases, which should mean that they can afford something more.

As they perhaps settle down and have a family, they might then want to move home and upgrade what they currently have, perhaps with more space or an increased number of bedrooms. As they get older, their children have left home to start their own independent lives, they might decide to downsize and find somewhere smaller.

But, without the movement of available properties because of the increasing cost and expense, the housing market becomes static.

For the politician, the affordability of a home is a key point for their constituents, while the health of the housing market is a strong indicator of the health of the economy at large. So, something needs to be done to facilitate the sale and purchase of homes, particularly for those who need greater assistance because of their financial circumstances.

The idea of the property tax that has got some commentators hot under the collar tries to do just that, while sticking to the Labour principles that those who are better off should help those who are less fortunate.

If the mooted idea for a "proportional" property tax goes ahead, it would be triggered at a higher threshold and then increase as the house price goes higher. This means that moving home will be more affordable not only for first-time buyers but those wanting (or needing) to move to another property. The suggested initial threshold sits at £500,000. The onus for paying the tax would also shift from the current buyer to the seller, which makes more sense since they are in receipt of the money from the successful sale.

In addition, as a potential solution to the dire position of some of the local authority finances, a local property tax, based on the home's value, be implemented to help fill the financial holes that local councils are experiencing.

None of this has been decided and it should be made clear that this is just an idea that is being investigated and developed.Recent reporting on Rachel Reeves' stamp duty reform plans suggests that the stamp duty change, were it to be implemented, would be put in place during the current Parliament, while the council tax overhaul would take longer and might have to be taken into Labour's second term, should they win the next election.

• For first-time buyers: The proposed changes could significantly reduce the barrier to entry, making homeownership more accessible.
• For existing homeowners: Moving up or down the property ladder could become more affordable, potentially unlocking the static housing market.
• For sellers: The tax burden would shift to sellers, but this could be offset by increased market activity and potentially higher property values.

With potential changes to property taxes on the horizon, getting professional legal support for your home purchase or sale is more important than ever.

At Homeward Legal, our experienced conveyancing solicitors provide fixed-price quotes and operate a 'no completion, no fee' promise for your peace of mind.

Call for a quote or visit our quick quote generator.