Rachel Reeves, the new UK Shadow Chancellor has raised the possibility of a new capital gains tax. This new tax would disproportionately affect higher-valued primary residences all across the country. This is particularly pertinent against the backdrop of a record £20 billion fiscal black hole that the government must plug. The proposal represents a radical change of course for Prime Minister Keir Starmer. In the lead-up to these elections, he has promised no new taxes on primary residences.
Reeves has been a prominent supporter of overhauling the UK’s convoluted and unpopular property tax system. In her 2018 pamphlet “The Everyday Economy,” she argued for radical tax reform, emphasizing the need to modernize the current taxation framework to better reflect contemporary economic realities.
The complexity of the UK’s overall property taxation picture is enormous. Council tax rates are based on property valuations from 1991, and stamp duty is paid as a one-off lump sum at the point you purchase a new property. Stamp duty is quite progressive based on the property value, going as high as 12% for homes over £1.5 million. This patchwork, dollar-chasing system has increasingly come under fire for being old and unfair.
To address these challenges, Reeves has revisited her earlier, more ambitious mansion tax proposal. This new initiative is similar to Vince Cable’s 2009 proposal to add a 0.5% tax on properties worth more than £1 million. Her more recent conversations indicate a deep, fundamental change in attitude towards property taxation in the UK.
Tim Leunig, a noted expert on property tax reform, has contributed to the ongoing discourse by suggesting an alternative framework. He suggests an environmental charge set at a maximum of £20 for properties valued under £500,000. For those below this threshold, a kinder, fairer, and more predictable system would take over from stamp duty. Leunig’s plan would set the rate much lower, at 0.54%. On top of this, he proposes further charges on properties over £1 million, which he hopes would bring in money like stamp duty.
Leunig proposes that homeowners be charged a discounted annual property fee equivalent to 2 percent of the property’s original purchase price. If this new obligation were to become permanent. This very simple reform would make the whole process much easier and, more importantly, make sure property owners pay their fair share to public coffers.
Reeves’ curiosity towards the capital gains tax is a testament to her willingness to tackle the grim fiscal realities the UK faces. “We need a radical overhaul of the tax system because our current system of wealth taxation isn’t working,” she stated, highlighting the necessity for comprehensive reform.
Yet the possibility of moving forward with a capital gains tax has elicited doubt from at least one other sector. Leunig remarked, “Reeves is so desperate to find money she is flying every kite going to see which ones get knocked down,” suggesting that her proposals may be more exploratory than definitive at this stage.
Critics have pointed out that the UK’s property taxation is already among the highest in comparison to other nations. Ben Hopkinson emphasized this point, noting that “no other countries do this without some form of exemption or rollover which allows sellers to pay it much later down the line.” These types of observations only further illustrate the real-life complexities, unintended consequences and dangers with an imposition of a capital gains tax as currently proposed.
Needless to say, property tax reform discussions have gotten pretty hot. Reeves’ proposals are evidence he’s prepared to see through big policy moves that meet the nation’s fiscal requirement. Those next months will prove to be key. Further debates will continue about how the UK’s property taxation framework should be restructured, looking at how to balance fairness with revenue generation.