Treasury Considers an Overhaul of Property Taxes
The UK Treasury is exploring significant changes to the nation’s property tax system, with potential reforms to stamp duty and council tax on the table.
According to a report in The Times, senior ministers have instructed officials to examine how a new system of national and local property taxes might work. One proposal under consideration could involve replacing stamp duty with an annual tax on homes valued above £500,000.
It is important to know that the proposed annual tax would only apply to homes purchased after the system is introduced and not be applied retroactively, therefore the 5% stamp duty surcharge for additional properties, such as buy-to-let homes and second houses, would remain and these properties, would be exempt.
How does it work today?
Currently, stamp duty charges buyers a percentage of a property’s purchase price — starting at 2% for homes between £125,000 and £250,000 and rising to 12% for properties over £1.5 million.
While Council Tax bands are based on 1991 values, property prices today are vastly higher.
Here’s the chart showing Stamp Duty costs by Council Tax Band, based on realistic 2025 house prices:
Bands A–C: No stamp duty for homes under £250k.
From Band D onward: the cost rises significantly.
- Band A: £120,000
- Band B: £160,000
- Band C: £220,000
- Band D: £300,000
- Band E: £420,000
- Band F: £550,000
- Band G: £800,000
- Band H: £1,200,000
What would the changes be?
Under the proposed model, instead of paying a lump sum when purchasing, buyers of homes worth over £500,000 would instead pay an annual levy.
Costs for a £650,000 house:
- Stamp duty today: around £22,500 (one-time)
- New annual tax: £3,006 total
- £2,196 paid to the council
- £810 paid to the government
Costs for a £1,100,000 house:
- Stamp duty today: around £53,750 (one-time)
- New annual tax: £5,706 total
- £2,196 paid to the council
- £3,510 paid to the government
The breakdown for a home costing £1,100,000:
- £500,000 to £1,000,000 → £500,000 × 0.54% = £2,700
- £1,000,000 to £1,100,000 → £100,000 × 0.81% = £810
If your home is worth between £80,000 and £500,000, you wouldn’t pay the new national property tax (which replaces stamp duty), but you would instead pay a local property tax, to replace your council tax, at 0.44%.
Homes costing £300,000:
- £1,320 per year to your council.
Homes costing £500,000:
- £2,196 (the maximum amount) per year to the council
Support for a fairer system
Campaign group Fairer Share has long advocated for abolishing both stamp duty and council tax, in favor of a single flat-rate property tax of 0.48% annually. Andrew Dixon from the group welcomed the Treasury’s reported direction, calling it “a step in the right direction.”
A Times analysis from May found that 83% of English homeowners would pay less under a 0.48% annual tax compared to the current council tax system. The biggest increases would affect properties in London and the South East, where home values have risen most since council tax bands were last set in 1991.
Andrew Dixon said: “We’re eager to work with the government on a much-needed update to the property tax system, one that reflects today’s home values, funds local services fairly, and distributes the burden more evenly among homeowners.”
Here’s a comparison of the current council tax bands versus the proposed local 0.44% property tax.
For example:
- A Band D home (typical average) currently pays £2,088/year, but would pay only £343/year under the new system.
- Even a high-value Band H property would be capped at £2,196/year, slightly less than the current average of £4,152/year.
This shows that the proposed system is generally cheaper, especially for those in lower bands or outside London and the South East.
