Rachel Reeves, the UK’s Chancellor of the Exchequer, is facing mounting scrutiny and debate as she weighs sweeping changes to the country’s property tax system—a move that could affect tens of thousands of homeowners, shake up the housing market, and test the Labour government’s campaign promises. The proposals, which include potentially scrapping stamp duty, introducing an annual property levy, and ending the capital gains tax exemption for high-value primary residences, are being floated as ways to fill a yawning gap in public finances that some economists estimate could be as large as £50 billion.
The so-called ‘mansion tax’—a label that’s quickly gained traction in the press—would target homes above a certain value threshold, with current discussions centering on properties worth more than £1.5 million. According to The Times (as reported by the Express), this threshold could affect around 120,000 homeowners, many of whom are higher-rate taxpayers facing capital gains tax bills of nearly £200,000 each if they decide to sell. The proposed rates are stark: higher-rate taxpayers could face a 24% levy on any profit made from selling such a property, while basic-rate taxpayers would pay 18%.
But the implications go far beyond the wealthy. Pensioners, in particular, could be caught in the crosshairs. As property values in London and the South East have soared, many retirees considering downsizing may find themselves liable for hefty tax bills—potentially making it financially unfeasible to move. Aneisha Beveridge, head of research at Hamptons, told the Daily Mail, "It's a big change that would hit long-term owners hardest and create a cliff-edge at £1.5million, distorting behaviour around that point. While the headline gains look substantial, they're often the result of decades of ownership and, in some cases, house prices haven't even kept pace with inflation. For households who don't need to move, this could act as a strong disincentive to sell, dampening transactions and potentially weighing on house price growth and Treasury revenues alike."
Simon Brown, from property data firm Landmark Information Group, echoed these concerns: "Any tax that rises with property value risks slowing the housing market even further. If downsizing becomes less attractive, larger family homes stay off the market and transaction volumes fall. This reduces overall movement in the market upwards and downwards, and not only reduces choice for families and first-time buyers, but also hits the Treasury by shrinking the tax base."
The numbers underscore the potential for regional disparity. Data from Rightmove shows that just 1.6% of homes outside London would exceed the £1.5 million threshold, while 10.9% of homes on sale in the capital could be caught by the tax. "In essence this would predominantly be a tax on the most expensive areas of London and the South East," noted Colleen Babcock, Rightmove's property expert.
Some experts warn that the policy could even fail to deliver its intended fiscal boost. Andrew Wishart, an economist at Berenberg Bank, told The Telegraph, "It is going to incentivise people to not sell, to try and hold to the next election, to see if it changes. Therefore, it might not generate any additional revenues at all." The risk is not just theoretical: a slowdown in home sales would also mean less revenue from stamp duty, a transaction tax that can reach £93,750 on a £1.5 million home—or £168,750 if the buyer already owns another property. The Office for Budget Responsibility projects that stamp duty and similar taxes are set to raise £26.5 billion annually by the decade’s end, up from £15 billion last year. Any dent in these revenues, analysts argue, would further erode the Chancellor’s already slim £9.9 billion headroom against borrowing targets.
Reeves’s willingness to consider radical reform isn’t new. In her 2018 pamphlet, The Everyday Economy, she wrote, "We need a radical overhaul of the tax system because our current system of wealth taxation isn’t working." Seven years later, she appears to be revisiting those themes, with The Guardian reporting that she is examining the possibility of scrapping stamp duty altogether and replacing it with an annual levy based on the property’s value and the time it was bought. Experts like Tim Leunig—whose work has found its way to Treasury officials—suggest that an annual property tax rate of 0.54%, with an extra supplement for properties over £1 million, could match or even exceed the revenue generated by stamp duty. Leunig argues that such a system would encourage people to downsize, freeing up larger homes for younger families, and make the market more fluid.
But the politics are fraught. Before the 2024 general election, both Labour spokespeople and Prime Minister Sir Keir Starmer unequivocally denied any plans to introduce capital gains tax on primary residences. A Labour spokesperson said, "Labour will not introduce capital gains taxes on primary residences. It's a bad idea. The Conservatives are lying. It's a sign of utter desperation that the Tories are talking about things they have imagined, and that Labour isn't doing." Starmer himself declared he could "absolutely" guarantee that no such tax would happen: "There was never a policy so it doesn't need ruling out, but let's rule it out in case anybody pretends that it was."
Now, with the fiscal black hole looming, officials are examining all options. The Guardian notes that any changes to council tax—another deeply unpopular and outdated system, based on 1991 property valuations—are likely to be delayed until Labour’s potential second term, as ministers are keenly aware of the political risks. Ben Hopkinson, head of housing at the Centre for Policy Studies, cautioned that imposing capital gains tax on primary residences would be a major disincentive for people to move out of larger properties, noting, "No other country does this without some form of exemption or rollover which allows sellers to pay it much later down the line."
Underlying all these debates is the reality that Britain already taxes property more heavily, relative to GDP, than almost any other developed country. According to the OECD, the UK’s property tax take is three times that of Germany. As Leunig put it, "Property is inherently difficult to tax. But we still manage to do so – at a rate three times higher than Germany."
As Rachel Reeves and her team weigh their next steps, the stakes couldn’t be higher—not just for the government’s fiscal health, but for homeowners, pensioners, and the broader housing market. The coming months will reveal whether the Chancellor’s search for new revenue streams will lead to bold reform, political backlash, or a cautious retreat.
