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With Labour’s Budget imminent, the chancellor faces a £22bn hole and a narrowing set of promises on tax. Property, long the quiet corner of the system, may finally be in her sights. Here Sean O’Grady and Albert Toth analyse the options available to Reeves
Saturday 22 November 2025 11:46 GMTComments
CloseChancellor paves way for Budget tax hikes as she warns 'easy answers' won't fix economy
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As Rachel Reeves prepares for her crunch Autumn Budget, speculation over where she might turn for new revenue has reached fever pitch.
The chancellor has warned there will be no “easy choices” on 26 November, after the Institute for Fiscal Studies (IFS) estimated she needs to find at least £22bn to stabilise the public finances.
Reluctance from No 10 in recent weeks to re-commit to Labour’s manifesto promise not to raise taxes on “working people” has only deepened uncertainty.
With the three largest revenue sources understood to be off the table, it has been widely speculated that the chancellor could opt for a series of smaller adjustments – to pensions, inheritance, and particularly property – a potential source of billions in untapped tax revenue.
Several leading economists have warned that this piecemeal approach could also prevent the overhaul many believe is needed in the UK’s “complex” tax system. Tax expert Dan Neidle, giving evidence to the Treasury committee, urged Ms Reeves not to pick from a “Scrabble bag” of small-scale tax tweaks.
open image in gallerySpeculation that the Chancellor could remove the 5% VAT on energy bills in her Budget statement next week has been mounting (Leon Neal/PA) (PA Wire)“Every time you create 10 more tiny tax rises and tax changes, you add to that layer which has ossified our tax system,” he told MPs. “I very much hope she does not do that.”
Reports suggest the Treasury is considering radical plans to reform stamp duty and council tax – potentially delivering the kind of structural change economists are calling for. Smaller adjustments to how high-value properties and landlords are taxed are also said to be under review.
In the run-up to the Budget, the chancellor has been clear that any tax rises will target those with the “broadest shoulders”. This suggests any new levies or reforms will be progressive – higher for those with greater incomes or wealth.
These measures would also align with Labour’s housebuilding plans, with new housing secretary Steve Reed reaffirming the party’s pledge to build 1.5 million homes.
Here, The Independent examines the options on the table for changing how property is taxed in the UK.
Mansion tax
One option reportedly under consideration is a “mansion tax” on high-value homes.
Two approaches are thought to be in play. The first would impose a simple 1 per cent annual charge on properties valued above £2m – meaning a £10,000 yearly fee for a £3m home.
A more complex version would remove the capital gains tax (CGT) exemption on main residences worth more than £1.5m.
Currently, homeowners do not usually pay CGT on the sale of their primary residence, though the tax applies to other property, stocks and high-value possessions. Sellers pay CGT on the “gain” – the difference between the purchase and sale prices – above an annual allowance of £3,000. For higher and additional-rate taxpayers, the rate is 24 per cent; for basic-rate taxpayers, it’s 18 per cent.
In practice, a homeowner selling a £5m property bought for £4m could face a £240,000 CGT bill (24 per cent of the £1m gain).
“The effectiveness of any of these proposals very much depends on the thresholds the Treasury decides to set,” says Hannah Aldridge, senior research and policy analyst at the Resolution Foundation. “My instinct is it won’t generate the level of revenue that some changes to the income tax system could generate.”
Property wealth is an “incredibly undertaxed” area of the economy, Ms Aldridge adds, arguing that reform is viable – though she believes council tax changes could achieve this more fairly and effectively.
Sean O’Grady: “The handsome tax breaks historically given to investment in residential property have made many people rich but have also encouraged house price booms, made a home unaffordable for many, and discouraged more ‘productive’ investment in business, which has few such fiscal advantages. Plus you can ‘consume’ a home in a way you can’t a share portfolio.
“If you invest in shares in a British company, which would increase productivity and GDP, any capital gains you make get taxed. If you buy a flat to live in instead, it’s entirely feee of such levies. Indeed, until 2000, home buyers even enjoyed tax relief on the cost of their mortgages - ‘MIRAS’, or mortgage interest relief at source. It was a lucrative state subsidy to home owners, which could, at one time, even be doubled up by a married couple, entitled to two MIRAS allowances. A lost world.
open image in galleryKensington and Chelsea in West London houses over a quarter (26.5 per cent) of UK homes worth £1.5 or more (Getty/iStock)“One problem with an unrealised potential and heavy liability for CGT on any investment, and especially a home, is that it discourages people from selling and cashing in their profits, because of that big tax bill. They might prefer to wait and see if the rates go down or other reliefs are brought in in the years ahead - or ‘preserve’ the asset, and profit, so it can be passed on to children. One fair way to ameliorate this would be to index-link gains, so that HMRC aren’t basically just taxing inflation; only real-terms gains get taxed (as used to be the case some years ago on other assets).
“A more coercive option would be to impose a notional levy on unrealised gains payable at the point of death - basically a tougher inheritance tax (which never accounts for capital gains or losses as such but only the net value of an estate over a certain size). Of course the very rich have always found a way to use trusts to avoid such taxes anyway.”
The Political Risk: A levy on high-value homes risks reigniting Labour’s old ‘tax the middle class’ attacks, especially in London and the South East where house prices bear little relation to income. For Reeves, this is politically explosive territory.
Overhauling council tax
Economists broadly agree that council tax is one of the most outdated elements of the UK’s tax system. Based on 1991 valuations, it has failed to keep pace with decades of uneven house price inflation.
For example, the lowest property band (A) in Westminster – for homes valued at £40,000 or less in 1991 – incurs an annual bill of £948.78. In Blackpool, the same band costs £1,518, despite property prices being significantly lower.
The IFS argues council tax should be replaced with a levy proportional to current property values. However, the think tank notes this would not raise additional revenue on its own; it would instead distribute the tax burden more fairly and make rate changes less arbitrary.
The Treasury is reportedly considering ideas drawn from a centre-right think tank, Onward, whose 2023 report proposed replacing council tax with a “local property tax”. This would be paid by owners rather than occupiers, based on up-to-date sale values and capped at £500,000 to prevent the wealthiest areas from setting disproportionately low rates.
“To reform council tax properly, you need to do a revaluation exercise,” says Ms Aldridge. “But speculation suggests only the top bands may be revalued to identify the most expensive properties and apply a surcharge.”
Such a reform could target properties that have gained the most in value over the past two decades, she adds.
Reports suggest Ms Reeves is now considering a major overhaul focused on higher-value homes. Around 2.4 million properties in England’s top tax bands could be revalued, with rates rising for the 310,000 most expensive homes (those worth more than £1.5m).
According to The Times, this would raise around £600m a year, adding roughly £2,000 to the annual bill for owners of high-value homes.
Last month, more than a dozen Labour MPs – mostly representing northern constituencies – wrote to Ms Reeves urging her to scrap council tax altogether, calling it “unfair” and outdated.
The MPs said the system “bears little resemblance to the realities of today’s housing market,” adding: “The result is a system that punishes communities like ours in the nations and regions outside London and the south-east.”
open image in galleryBirmingham raised its council tax by 7.5 per cent in April – getting special permission to exceed the 4.99 per cent cap (Getty Images)Sean O’Grady: “This feels like a neat solution, short of a proper reform of the system and revaluation. As ever, the new bands would be a quite crude sort of wealth tax, taking no account of any mortgage debt (and commensurately high repayments), nor of the income of the occupants (who may be renters, albeit wealthier ones), and could leave substantial geographic disparities in place.
“A refinement (as with all such wealth taxes) would be to allow an owner or occupant to roll up and defer payment of the notional tax bill until they move, sell up or die (the latter basically merging into inheritance tax).
“Of course any reform of council tax alone wouldn’t address the central issue in local government finance, which is the way the bills for social care and SEND - unavoidable statutory obligations - are rising so very rapidly, “crowding out” funds for other services and pushing councils towards bankruptcy.
“Even Reform UK’s “DOGE” drive has failed in the face of such realities. Higher council tax might bring more money in and ease the burden on the grants from the Treasury for a while, but it would leave those long-term cost challenges in place.”
The Political Risk: Revaluing bands would correct a long-broken system, but it hits homeowners in the very regions Labour must keep on side. Any jump in bills will be seized on by Conservative and Reform MPs as a direct assault on ‘aspirational’ voters.
Replace stamp duty
Any overhaul of council tax could also pave the way for replacing stamp duty, which IFS director Helen Miller recently described as “awful”.
Stamp duty is currently paid by buyers, with rates determined by the property’s price and whether it is a first purchase. It raised £11.6bn for the government in 2023/24.
Critics say the levy “gums up the housing market” by discouraging mobility, especially among those who need to move frequently.
The IFS argues that a reformed property tax system could eliminate the need for stamp duty altogether.
The Treasury is believed to be considering reforms inspired by the same Onward report that proposed a local property tax. Under this model, stamp duty would be replaced by a “national property tax” on sales of homes worth more than £500,000, paid by the new owner only on the portion above that threshold.
open image in galleryCritics say stamp duty “gums up the housing market” (Daniel Leal-Olivas/PA Archive) (PA Archive)At a rate of 0.54 per cent, with a 0.278 per cent supplement for homes above £1m, the levy would raise similar revenue to current stamp duty while reducing the number of affected properties from 63 per cent to 22 per cent of the market.
This would mean a £600,000 home paying £540, and a £1.5m home paying £6,790.
An alternative being floated would shift the burden from buyer to seller – a dramatic change aimed at easing barriers to home ownership by taxing those receiving the proceeds instead.
While MPs recently rejected a motion to abolish stamp duty, the Treasury is thought to still be exploring options along these lines.
Sean O’Grady: “Stamp duty is an anachronism and a bad tax, which does very little to redistribute wealth, encourage development or make the housing market ‘liquid’. Again, it is a crude and unsatisfactory informal wealth tax - but only paid if people move house. Which is a bit ridiculous. By increasing transactions costs it does indeed make it harder for older folk to ‘downsize’.
“Replacing it with almost any alternative would be preferable, but also controversial. It could be combined with a reform of property taxes more generally, including council tax, but would have to be gradual and careful. The aficionados suggest a ‘site valuation’ or ‘land value’ tax which would ignore the actual buildings and focus on their improvement potential, encouraging development of empty sites. Radical and hard to understand, though.”
The Political Risk: Switching the burden from buyer to seller would be popular with first-time buyers but toxic with older, wealthier homeowners – a demographic Labour cannot afford to repel before an election cycle.
A new ‘landlord tax’
Turning to the rental sector, the chancellor is reportedly considering applying National Insurance (NI) contributions to rental income – a move that could raise around £2bn.
Currently, rental income is subject to income tax but not NI, as it is not classed as “earned income”.
The change would allow the chancellor to target a new revenue stream while remaining within Labour’s commitment not to raise taxes on “working people”. Employee NI contributions currently stand at 8 per cent, falling to 2 per cent on earnings above £50,270.
open image in galleryCurrently, rental income is subject to income tax but not NI, as it is not classed as “earned income” (Dominic Lipinski/PA) (PA Archive)Sean O’Grady: “Everyone hates landlords, it seems, but these changes to their incomes coupled with more costly and onerous obligations under the new Renters Rights Act will inevitably lead to a contraction in the market. There are also the new Domestic Minimum Energy Efficiency Standard (MEES) Regulations, which will cost landlords a maximum of £3,500 per property; and in Scotland a new law gives local councils the power to cap rent rises, which may well in the longer term also erode returns – the cap is one percentage point above inflation (CPI + 1 per cent) up to a maximum annual increase of 6 per cent. Any and all of these reforms could be extended under electoral pressure from ‘Generation Rent’, who greatly outnumber landlords.
“If you tax and regulate stuff you tend to reduce supply, and houses and flats are no different. More buy-to-let and other rental properties will be sold off, and there’ll be fewer new landlords coming into the market.
“So what? Well, while it may make more ex-rental homes available and more affordable for buyers, there will be more of a shortage for those who still cannot find the deposit or fund the mortgage and have to rent. That would actually tend to push rents higher.
“History suggests that rental controls coupled with inflation leave a few lucky renters with a cheap roof over their heads, but with an overall decrease in supply and choice. Rent controls also encourage landlords to skimp on repairs. Difficult as it might be to believe now, but such a regime under the high inflation of the 1970s led to the virtual extinction of the private rented sector, reaching its nadir at about 6 per cent of homes in 1981. (The availability of subsidised council housing was also a significant factor).”
The Political Risk: While politically easy in a ‘Generation Rent’ landscape, cracking down on landlords risks shrinking supply and driving up rents a backlash Reeves could be blamed for even if the economic logic stacks up.
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