UK regions where property tax proposal could hit homeowners hardest

Wealthy homeowners living in London and the south east of England could be worst-hit by new property taxes that the government is rumoured to be considering.

Chancellor Rachel Reeves is reportedly considering replacing stamp duty with a new national property tax on the sale of homes worth more than £500,000.

Reeves is also said to be considering introducing a form of a mansion tax for homes by introducing a capital gains tax charge on properties that sell for more than £1.5 million.

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Under this system, homeowners selling their main residence would lose private residence relief and instead pay capital gains tax on any increase in the property's value, set at 24% for higher-rate taxpayers and 18% for basic-rate taxpayers.

It comes as the Treasury remains keen to balance the books in the next Autumn Budget amid slow economic growth and high inflation.

First-time buyers already don’t pay stamp duty on the first £300,000 of a purchase so those buying properties above this threshold may rejoice at the prospect of paying nothing at all.

The threat of a mansion tax could even cause prices to drop below the £1.5 million mark, which could help those moving up the ladder.

But there are warnings that shifting stamp duty to sellers and introducing a mansion tax would reduce the incentive for people to downsize and further restrict supply.

This could push up house prices further.

There will also be a big regional divide as the changes would have more of an impact in the south of England and London where property prices tend to be higher.

Which regions could be worst-hit by a national property tax?

Rightmove data suggests that just under a third of homes for sale in England are priced at above £500,000, and would be subject to the proposed new annual property tax, which would replace stamp duty if the policy came into force.

Homeowners in London would be worst the hit, with 59% of homes in the capital currently listed with an asking price of more than £500,000.

In contrast, just 8% of listings in the North East of England are above the £500,000 threshold.

The tax may not even attract as much as the Treasury hopes for.

A fifth of agreed property sales so far this year in England have been for homes over £500,000, Rightmove said, with 52% in London and just 4% in the North East.

How a mansion tax would hit homeowners

Currently, homeowners don’t pay any capital gains tax when selling their main property.

But the Treasury is reported to be considering applying capital gains tax when home sales reach above £1.5 million.

This would mean these sellers are treated the same as those selling an investment property.

The policy may be a winner with left-wing voters but Rightmove data shows just over 1% of all home sales agreed this year have been for properties worth above £1.5 million.

In London, one in ten (11%) of homes for sale are in this price bracket, with 5% of agreed sales so far this year being for homes above £1.5 million.

In the South West, 0.7% of agreed sales are in the £1.5 million price band, with 2% of available homes for sale in this price bracket.

In the North East, just 0.1% of agreed sales are in this upper-end bracket, with only 0.5% of all properties available for sale priced at over £1.5 million.

How should homeowners react to proposed property tax changes?

For now, claims of property tax changes are just speculation.

Experts are warning against rushing into decisions based on rumours.

Sarah Coles, head of personal finance at Hargreaves Lansdown, said it’s vital not to be driven into doing anything you wouldn’t otherwise consider.

She said: “If you’re worried about tax on downsizing, the key again is not to rush into anything. Downsizing is a major life change, involving all sorts of compromises and changes, and shouldn’t be rushed before you’re ready for it.

"This is your home, and you need to be happy in it. Ask yourself if you would be considering the move if it wasn’t for the rumours, and how you would feel if nothing ended up changing. That should help you decide if it’s right for you.”

But Johan Svanstrom, chief executive of Rightmove, has urged the Treasury to consider if these changes would be worth it financially and socially.

He said: “There is no real incentive for someone in a large home to downsize to a smaller one unless they truly need to and can still afford the stamp duty bill. The current rumours to stamp duty changes would only seem to exacerbate this, as it may deter some at the top of the market from moving if they would then face a new annual tax.”

Svanstrom highlighted that Rightmove’s data shows a proposed mansion tax would only affect a small proportion of the market.

He added: “The government needs to be cautious over the cumulative effect of taxation on higher priced areas of the country as it simply risks stalling this part of the market, since the importance of mobility for people and the overall economy is strong in those areas too.

“A slower market can affect all types of movers, from first-time buyers to key workers and families, even if a tax is aimed at higher value properties.”