Could council tax and stamp duty be replaced with new tax?
Number 10 has distanced itself from claims the prime minister Andy Burnham was considering overhauling the property taxation system, but how would a proportional property tax or land value tax work?
New prime minister Andy Burnham has distanced himself from rumours that he was actively looking at proposals to replace council tax and stamp duty with alternatives that reflect a property’s current value.
It comes after The i Paper reported he was looking at ways to replace the current property taxation system with either a proportional property tax or a land value tax.
However, Number 10 has denied Burnham is considering scrapping council tax and stamp duty.
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A spokesperson told MoneyWeek that rumours the prime minister is considering replacing stamp duty and council tax with either a proportional property tax or a land value tax are “not true”.
They added: "As has always been the case, decisions on tax are a matter for the chancellor to set out at fiscal events.”
Burnham has previously said it is unfair that households in affluent parts of London (like Wandsworth or Westminster) are paying far less in council tax than households in poorer areas where house prices are much lower.
In an interview with the BBC on 26 July, Burnham said: “There are people here in Manchester who pay a much higher council tax than people living in much larger homes in London.
“[Former Labour chancellor] Rachel Reeves was right to start to reform council tax to create some fairness there in relation to people in homes that are of much greater value who haven’t seen their council tax go up over the years because of the failure to revalue the banding.”
A proportional property tax would mean higher taxes for people in expensive homes
It had been rumoured that Burnham was considering removing council tax and stamp duty and replacing it with a flat 0.48% annual charge on a home’s current value, although Number 10 has since said this is “not true”.
This proportional property tax method would greatly reduce the amount of council tax people in areas with lower house prices pay while increasing the amount people in more expensive areas pay.
For example, a property in the North East (the area in England where house prices are lowest) cost an average of £181,133 in June, according to Lloyds.
Assuming the tax is levied at a flat 0.48%, the typical household would have to pay £869 a year. This is far lower than the Band D council tax rate in Newcastle of £2,540.
On the other hand, the average house in London, which costs £534,831 according to Lloyds, would pay £2,567 a year. This is far more than a Band D property would pay in all London boroughs.
The most expensive London borough for council tax is Kingston upon Thames where Band D costs £2,050 a year – a household here would pay around £500 more annually under the proportional property tax proposal.
Meanwhile, the borough with the lowest council tax rate is Westminster, where a Band D property pays just £935 a year in council tax – over £1,500 less than the proposed proportional property tax for the average London house.
However, properties in Westminster are far more expensive than in the rest of London – they cost £836,000 on average, according to the ONS.
As the proportional property tax proposal is a flat annual levy on a home’s current value, the more expensive your home is, the more you will have to pay. For example, a home worth £1.3 million would have to pay £6,240 a year.
Could a land value tax be introduced?
Reports from The i Paper also suggested Burnham’s team was looking at a land value tax (LVT) as an alternative to stamp duty and council tax.
A land value tax is paid on the value of the land that a property sits on, rather than the value of the property itself.
This means that, theoretically, a large five-bedroom house in a remote and unappealing area of the country would pay far less in tax than a similar house in the middle of London.
Research by Tax Policy Associates suggests that if land value tax was introduced, households in almost all parts of the country would pay much less tax, whereas those who live close to large cities would generally pay much more.
Could the ‘mansion tax’ threshold be lowered?
In the 2025 Autumn Budget, then-chancellor Rachel Reeves announced a new tax on expensive homes. The High Value Council Tax Surcharge will take effect in April 2027, based on 2026 property values.
Dubbed the ‘mansion tax’, it means households who live in properties worth more than £2 million will have to pay an additional council tax surcharge of between £2,500 and £7,500 a year depending on the value of their home.
The resident is usually liable to pay council tax, but the mansion tax applies to homeowners, rather than occupiers, meaning tenants wouldn’t be responsible for paying the surcharge.
Before Burnham became prime minister, the Mail of Sunday reported he was looking at lowering the mansion tax threshold to £1.5 million, potentially pulling 150,000 additional households into paying the tax.
Would you pay more tax under the proposals?
The biggest winners of a proportional property tax or a land tax would be people who live in inexpensive homes in parts of the country where property is cheap. With low house prices, a 0.48% annual charge would likely be far less than current council tax rates.
They would also pay less under a land value tax, assuming their property is not in a major city or the south east of England.
On the other hand, the biggest losers would be people who live in expensive houses in expensive parts of the country – especially people living in parts of London where council tax is currently low.
