Rachel Reeves is strongly considering a change to council tax payments as a way for owners of more expensive houses to pay more, according to people familiar with the matter.
The move would be instead of a direct selling tax on expensive houses, which experts have warned would simply gum up the market as fewer people moved.
Although no decisions have been taken, Reeves has said that higher taxes on the wealthy will be “part of the story” in her Budget on November 26, as she looks to fill an estimated £20bn gap in the Treasury’s finances.
People close to her preparations say that “administrative simplicity” is key, according to the Financial Times.
A change to council tax payments would raise in the low-to-single-digit billions, according to the FT.
Council tax bands are currently based on valuations from the 1990s, and significant house price growth since then – particularly in major cities – has led to some owners of multi-million pound properties paying similar rates to those who own terraced houses in small towns.
Changes to the levy have been on the table since 2012, with reforms backed by former Chancellor George Osbourne, although the idea was later blocked by David Cameron.
One way of changing rates would be to double council tax rates on properties in the highest two existing bands, which could raise £4.2bn, according to the IFS.
“I could see them doing a supercharged council tax for high-value properties – it’s one way to tax wealth,” said Ruth Curtice, head of the Resolution Foundation think-tank, told the FT. “On its own it wouldn’t sort out the mess that is property taxation, but we do already pay council taxes and you’d be asking the wealthy to pay a bit more.”
Any change to property taxes is likely to disproportionately affect London, which has much higher house prices compared to the rest of the country.
“London already runs the risk of becoming an ageing city, with young professionals moving out of London due to its high house prices and surging rental costs,” Peter Graham, partner and tax lead for real estate and construction at RSM UK, said.
“We could therefore see a slowdown in London transactions, with sellers delaying moving or downsizing to avoid being hit by [a] tax.”
City AM has contacted the Treasury for comment.