Chancellor Rachel Reeves has made it hard not to raise property taxes due to Labour’s manifesto pledge not to raise VAT, income tax or National Insurance.
That is according to Jeremy Leaf, north London estate agent and a former RICS residential chairman.
There’s been talk of the government scrapping stamp duty and replacing it with an annual property tax affecting homes worth over £500,000.
A mansion tax is also speculated, which would charge a 1% annual tax on people who own properties worth over £2 million.
Leaf said: “If the Chancellor is determined to stick to the Labour Party’s manifesto pledge not to raise VAT, income tax or National Insurance, then property taxes must fill more of the economy’s ‘black hole’. However, an ambitious, housebuilding-led, recovery is unlikely without realistic growth prospects.
“Further property taxes may be politically easy to introduce but may compromise confidence in the economy, which is a worry as housing constitutes 6% of GDP and is a significant consumer spending and confidence driver.
“The government needs to encourage job and social mobility as well as transactions, and address continuing affordable private and social housing shortages, plus a record low and slow planning process.”
Leaf suggested the Chancellor should remove VAT on retrofitting, regeneration and fire safety for registered social housing providers, in a bid to help under-used land and buildings create new supply.
Stamp duty raised £13.9 billion in the 2024-25 financial year on 83% of sales, but it’s commonly criticised for dicinsentivising buyers and mobility.
Leaf suggested it could be scrapped and replaced with a 0.5% sales tax on properties selling for over £500,000.
However, he added that only makes sense for sellers who have seen capital appreciation, while it would be seen as unfair to those who have recently paid stamp duty on a purchase.
Leaf argued it’s likely the government will introduce a Mansion Tax ‘dressed up’ as higher-value council tax bands.
He added: “A mansion tax could be self-defeating as it is likely to be payable annually and not transaction based like stamp duty and capital gains tax. It’s also a post-tax cost so, for example, a 1 per cent charge at £2million could mean 1.8 per cent for higher-rate taxpayers i.e. £36,000 not £20,000. Also, if it is a ‘slab’ tax, owners of homes valued at £1.99 million might pay nothing, so huge conflicts are likely. Discretionary movers would potentially choose to pause, not buy or sell, reducing transaction numbers and compromising the wider economy – as well as confidence. The new tax is unlikely to make a significant difference to Treasury coffers either, as it will affect relatively few.
“The most important question for all suggested Budget measures to answer is – what will be the impact on market activity as well as the consequences for the wider economy? A need to encourage job and social mobility as well as growth is a given but a mansion tax probably won’t tick that box.
“The housing market is at a crossroads – whatever the Chancellor delivers on Wednesday could mean activity reduces further, or if it is not as bad as rumours have suggested, we could see a stronger 2026 rebound as the market recovers. At least we will have tax clarity, which is better for the market than the current situation we find ourselves in. On balance, we are hoping for the least-worst scenario which doesn’t compromise activity, raise rents or stop building.”
