The UK chancellor faces a fiscal gap of £25–50bn for day-to-day spending while manifesto constraints rule out raising income tax, national insurance or VAT. A range of property-tax measures are being considered, including inheritance tax reform, replacing stamp duty with a national proportional property tax on homes over £500,000, replacing council tax with a local proportional property tax up to £500,000 with a minimum £800 bill, and a possible CGT on primary residences above £1.5m. The current council tax is regressive and based on 1991 values, and stamp duty hampers mobility. Proposed measures risk new distortions such as trapping older homeowners and reducing market fluidity.
The past few weeks, we have seen a bewildering parade of policies emerging from Treasury sources. These include reforms to inheritance tax, replacing stamp duty with a national proportional property tax for homes worth more than 500,000, replacing council tax with a local proportional property tax levied on house values up to 500,000 with a minimum annual bill of 800 paid by the property owner, and a potential capital gains tax (CGT) on primary residences valued at more than 1.5m.
The government is right that Britain's property tax system is in desperate need of reform. The current council tax system is regressive and outdated, based on property values from 1991, and stamp duty is a punitive brake on mobility. However, the solutions being floated risk creating new problems while failing to solve the old ones. Take the proposed mansion tax by another name: a CGT on primary homes worth more than 1.5m.
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