Rachel Reeves puts London’s property market in her pre-budget crosshairs

Replacing stamp duty with new property tax said to be under consideration

Reforms of the property tax system in the UK are on the cards. PA

The UK Treasury is considering plans to raise money from a tax on the sale of homes worth more than £500,000, according to reports.

Government officials are said to be looking at a potential property tax, which would replace stamp duty on owner-occupied homes.

The “homes tax” would disproportionately affect homeowners in London and the South-East, where properties are more expensive. The average UK house price currently stands at £282,766, compared with £673,000 in London.

No final decision has been made, but it is thought this tax covering England and Wales could help to build a model for local levies to replace council tax in the medium term.

Chancellor Rachel Reeves would unveil any changes to the government’s tax policy at a fiscal event, such as a budget. The next budget is scheduled for late October or early November.

Buyers pay stamp duty under the existing framework, if they purchase property worth more than £125,000, rising from 2 per cent to 12 per cent for sales above £1.5 million.

The new levy would be paid by owner-occupiers on houses worth more than £500,000 when they sell their home, with the amount due determined by the value of the property and a rate set by the government.

Organisations such as the International Monetary Fund and the Institute for Fiscal Studies have called for the scrapping of stamp duty, with the IFS calling it “Britain’s worst and most damaging tax”.

It was reported that the Treasury was looking at suggestions from centre-right think tank Onward, which has said stamp duty “deters property transactions, encouraging people to make suboptimal housing choices and slowing down velocity in the market”.

A potential buyer looks at advertisements in an estate agents window in the south of England. PA

Former government adviser Tim Leunig has previously suggested replacing stamp duty with a “national proportional property tax” levied on house values greater than £500,000, in a paper published by Onward.

At a rate of 0.54 per cent, with a 0.278 per cent supplement on values over £1 million, the levy “would raise the same amount as stamp duty”, claims Mr Leunig.

Property taxes including stamp duty are forecast by the Office for Budget Responsibility to raise £15.7 billion this year, rising to £26.5 billion by the end of the decade. Council tax - which pays for services provided by local authorities - is forecast to raise £50 billion this year.

A Treasury official said that, as set out in the government’s 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.”

Mel Stride, the shadow chancellor, said: “The Conservatives have warned that more taxes are coming and now reports are emerging that the family home is next in the firing line.

“This tax grab would punish families for aspiring to own their own home. Under Labour nothing is safe. Your home, your job, your pension – the Chancellor has all of it in her sights.

“Rachel Reeves will tax your future to pay for her failure.”