The Treasury is examining major reforms to stamp duty and council tax, with Chancellor Rachel Reeves considering a new property tax that would apply to homes worth more than £500,000.

According to reports shared with The Guardian, the proposals form part of a broader strategy to modernise property taxation and raise revenue without breaking Labour’s pledge not to increase taxes on working people.

A new national property tax

Officials are modelling how a “proportional property tax” might replace stamp duty for owner-occupied homes. Under the plans, sellers of properties valued above £500,000 would pay a tax based on their home’s value when they sell. The levy would be collected directly by HM Revenue and Customs and would not apply to second homes.

Unlike the current stamp duty system, where buyers pay banded rates depending on property value, the new approach would simplify payments while generating a more consistent revenue stream. Stamp duty raised £11.6bn in the last financial year, but revenue fluctuates heavily depending on housing market activity.

Why reform stamp duty now?

The Treasury’s review is driven by two long-standing issues:

Rising property prices – UK house prices have soared, creating wealth inequality and highlighting flaws in the existing system.
Outdated council tax bands – Current council tax is based on 1991 valuations, meaning some households in modest regions pay more than owners of multimillion-pound homes in London.

A shift towards a national property tax could tackle these inequalities while also strengthening local government finances.

Council tax shake-up on the horizon

In the longer term, ministers are also studying how a local property tax could replace council tax entirely. This would see property owners – not residents – paying annual charges tied to the value of their homes, starting at around £800 per year for properties under £500,000. The revenue would go directly to local councils, many of which are facing severe financial pressures.

However, such a move would require complex reforms and is unlikely to happen before Labour secures a second term.

Political and economic context

Reeves faces growing pressure from within her party to consider more wealth-based taxes. Deputy Prime Minister Angela Rayner has been vocal about the need to rebalance regional funding and address inequalities entrenched by the current tax system.

Thinktanks, including the centre-right Onward, have backed proportional property taxes, arguing they would make moving house fairer and cheaper while correcting distortions in council funding.

Economists from across the political spectrum have also criticised stamp duty, calling it a blunt instrument that discourages property transactions and slows the housing market.

What this means for homeowners

If introduced, the new tax would only affect around 20% of property sales, compared with about 60% under the current stamp duty regime. With the average UK home valued at £272,664 in July, according to Nationwide, most homeowners would not be impacted.

For those selling high-value homes, however, the proposals mark a significant shift in how property transactions are taxed.

The road ahead

While no final decisions have been made, the Treasury’s work signals that stamp duty reform is firmly on the table. A new property tax could be phased in during this parliament, while a complete replacement of council tax may be left for a second term.

Reeves has made it clear that Labour intends to modernise property taxation to reflect today’s housing market realities. Whether these changes prove politically popular or spark backlash remains to be seen – but one thing is clear: the days of the current stamp duty system may be numbered.