Chancellor Rachel Reeves faces mounting pressure to find billions in new revenue as she prepares her crucial Autumn Budget, with property taxes emerging as a likely target for reform.
The £22bn Fiscal Challenge
The Institute for Fiscal Studies estimates Reeves needs to find at least £22 billion to stabilise Britain's public finances ahead of her 26 November Budget statement. The chancellor has warned there will be no "easy choices" available, while reluctance from Number 10 to reaffirm Labour's manifesto promise not to raise taxes on "working people" has deepened uncertainty about her approach.
With the three largest revenue sources understood to be off the table, speculation has intensified that the chancellor will opt for a series of smaller adjustments targeting pensions, inheritance, and particularly property - which represents a potential source of billions in untapped tax revenue.
Property Tax Reform Options
Several radical property tax reforms are reportedly under consideration at the Treasury. A 'mansion tax' on high-value homes represents one option, with two approaches thought to be in play. The simpler version would impose a 1% annual charge on properties valued above £2 million, meaning a £3 million home would face a £10,000 yearly fee.
A more complex alternative would remove the capital gains tax exemption on main residences worth more than £1.5 million. Currently, homeowners don't pay CGT on the sale of their primary residence, but this change could see sellers of expensive properties facing significant tax bills.
Hannah Aldridge of the Resolution Foundation describes property wealth as an "incredibly undertaxed" area of the economy, arguing that reform is viable though she believes council tax changes could achieve this more fairly and effectively.
Council Tax Overhaul
Economists broadly agree that council tax represents one of the most outdated elements of Britain's tax system. Based on 1991 valuations, the system has failed to keep pace with decades of uneven house price inflation, creating significant regional disparities.
The Treasury is reportedly considering ideas drawn from centre-right think tank Onward, whose 2023 report proposed replacing council tax with a "local property tax" paid by owners rather than occupiers. This would be based on up-to-date sale values while being capped at £500,000 to prevent the wealthiest areas from setting disproportionately low rates.
Reports suggest Reeves is considering a major overhaul focused on higher-value homes, with around 2.4 million properties in England's top tax bands potentially being revalued. Rates would rise for the 310,000 most expensive homes worth more than £1.5 million, potentially raising around £600 million annually.
Stamp Duty Replacement
Any council tax overhaul could pave the way for replacing stamp duty, which IFS director Helen Miller recently described as "awful". The duty raised £11.6 billion for the government in 2023/24 but critics argue it "gums up the housing market" by discouraging mobility.
The Treasury is believed to be considering reforms that would replace stamp duty with a "national property tax" on sales of homes worth more than £500,000. Under this model, the new owner would pay tax only on the portion above that threshold at a rate of 0.54%, with a 0.278% supplement for homes above £1 million.
This change would reduce the number of affected properties from 63% to just 22% of the market while raising similar revenue to current stamp duty arrangements.
New Landlord Tax
The chancellor is also reportedly considering applying National Insurance contributions to rental income, a move that could raise approximately £2 billion. Currently, rental income is subject to income tax but not NI as it isn't classed as "earned income".
This 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%, falling to 2% on earnings above £50,270.
However, tax expert Dan Neidle has urged the chancellor not to pick from a "Scrabble bag" of small-scale tax tweaks, warning that "every time you create 10 more tiny tax rises and tax changes, you add to that layer which has ossified our tax system".
The political risks are substantial, with any reforms targeting property wealth likely to prove controversial in London and the South East where house prices bear little relation to income. For Reeves, this represents politically explosive territory as she balances the need for revenue against potential voter backlash.
