Rachel Reeves, the UK’s Chancellor of the Exchequer, has found herself at the center of a storm over property taxes, as reports swirl about plans for a sweeping overhaul targeting owners of high-value homes. Facing a daunting £50 billion shortfall in the public finances, Reeves is reportedly considering two major changes: a so-called 'mansion tax' that would end the capital gains tax exemption for some main residences, and a radical shake-up that could replace both stamp duty and council tax with a new system of annual property levies.
According to The Times and Daily Mail, the Chancellor’s team is actively discussing the possibility of scrapping 'private residence relief' for properties above a certain threshold—currently rumored to be £1.5 million. If enacted, this would mean that homeowners selling their main residence could face capital gains tax (CGT) bills for the first time, with higher-rate taxpayers paying 24% on any gain in value and basic-rate taxpayers paying 18%. The move could impact roughly 120,000 homeowners, with average tax bills near £200,000 for those affected.
The measure, insiders say, could be unveiled in Reeves’ autumn Budget, as she seeks ways to plug the gaping hole in government finances. Economists have warned that the Chancellor is running out of options, and that tax hikes may be unavoidable. As reported by Daily Mail, Tory leader Kemi Badenoch did not mince words: “Rachel Reeves will tax anyone and anything to cover for her economic incompetence.”
But the mansion tax is only one part of a much bigger conversation about how Britain taxes property. As The Guardian and The Independent have detailed, Reeves is also weighing a complete replacement of the centuries-old stamp duty and council tax systems. The new proposal, inspired by recommendations from the center-right think tank Onward, would see an annual property tax levied on owner-occupied homes worth more than £500,000. The tax would be set at 0.54% of the home’s value above that threshold, rising to 0.81% for the portion above £1 million.
Second homes would remain subject to stamp duty (including the current 5% surcharge), but the new annual levy would not apply. Properties below £500,000 would be exempt, which, given the UK’s average home price of £272,664, means most households would be unaffected by the new charge. The aim, according to Onward and echoed in The Guardian, is to create a more reliable and less volatile revenue stream for the government, while making it easier and cheaper for people to move house. The hope is that by reducing transaction costs, the reform would encourage greater mobility and help modernize what many see as an archaic tax regime.
Onward’s plan doesn’t stop there. It also calls for ditching the much-maligned council tax—currently based on property values from 1991—in favor of a local proportional property tax. Local authorities would set the rate (suggested at 0.44%), with a maximum bill of £2,196 a year on homes up to £500,000. For properties above that, the government would collect the additional 0.54% annually. The reform would unify the property tax system across England and Northern Ireland, replacing the patchwork of arrangements that currently exist.
However, these proposals have not been universally welcomed. Critics from across the political spectrum and property industry have raised alarms about the potential impact on the housing market, particularly for long-term homeowners and pensioners. Aneisha Beveridge, head of research at Hamptons, told Daily Mail, “It’s a big change that would hit long-term owners hardest and create a cliff-edge at £1.5 million, 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.”
Tom Bill of Knight Frank echoed skepticism about the revenue potential, saying, “I’d be surprised if there are any gains to tax at the top end of the property market, given that prices in prime central London are down 20 per cent over the last decade. If there was anything that reduced demand further, then the prospect of gains in the short-term would pretty much vanish.”
Property data expert Simon Brown, from Landmark Information Group, warned, “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.”
TV presenter Kirstie Allsopp was one of the most vocal critics, telling Times Radio, “It’s not Rachel’s to go after because it’s their homes. It’s the roof over their head. And this Government seems to want to punish people for making the sacrifices they’ve made to buy their own homes.” She later told The Guardian that such a tax would be “really destabilising for the property market – and when I say the property market, I mean people’s homes.”
Despite the backlash, some experts and commentators see the proposals as a step toward much-needed reform and modernization. As The Guardian put it, “It is true that it is not hard – that anything would be better, but this does begin to feel like genuine reform and modernisation.” The new system, if adopted, would also address the unevenness of the current council tax banding, and could, in theory, help prevent further financial crises among local councils by giving them a more stable source of revenue.
Yet, even supporters admit the changes would not be a “fiscal panacea.” Onward’s recommendations call for a gradual phase-in, not a sudden switch, and experts predict implementation could take years. The reforms are not especially redistributive either—poor areas would remain at a disadvantage, while wealthy regions would continue to benefit from higher property values and stronger tax bases.
For now, the Treasury is staying tight-lipped. A spokesperson told Daily Mail, “As set out in the Plan for Change, the best way to strengthen public finances is by growing the economy – which is our focus. Changes to tax and spend policy are not the only ways of doing this, as seen with our planning reforms, which are expected to grow the economy by £6.8 billion and cut borrowing by £3.4 billion. We are committed to keeping taxes for working people as low as possible, which is why at last autumn’s Budget, we protected working people’s payslips and kept our promise not to raise the basic, higher or additional rates of income tax, employee National Insurance, or VAT.”
With the Chancellor’s autumn Budget fast approaching, property owners, economists, and political opponents alike are bracing for what could be one of the most significant overhauls of Britain’s property tax system in decades. Whether these changes will truly deliver on the promise of fairness, simplicity, and fiscal stability—or simply add to the complexity and controversy—remains to be seen.
