As the UK Labour Party navigates its policy options ahead of the next general election, discussions around property taxes have gained prominence. As recently as June, party leaders—including Sir Keir Starmer—have aggressively excluded capital gains tax from primary home sale from consideration. At the same time, external experts are proposing new, better frameworks for taxing the speculative, financialized housing market.
Ahead of the previous election, Labour leaders made a firm commitment that they wouldn’t introduce capital gains taxes on the sale of people’s primary residences. Their position was clear and direct. Sir Keir Starmer emphasized this commitment, stating he “absolutely” guarantees that such a tax would not occur during Labour’s first parliament if elected. This pledge has been central to making the party’s response to housing and taxation one of the key differentiators in English party politics today.
Under existing policies, first-time buyers receive more relief than their immediate housing needs require. They continue to benefit from a stamp duty exemption on properties up to £300,000. This marginally makes it easier for new homebuyers to get into the market and buy their first home. So if a buyer buys a principal residence for £200,000 and sells it down the road for £210,000, they get to keep all of that £10,000 profit. They will not face any capital gains tax rate on that profit.
Homeowners whose properties exceed 5,000 square meters or who rent out portions of their primary residence may face different tax implications. Like homeowners, landlords may be subject to capital gains tax. This is particularly the case if they mostly depend on income generated from rental properties. Tax liabilities may hit those who have a portfolio of rental properties, or those who are buying new properties with the intention of renting them out.
Labour continues to categorically reject a capital gains tax on people’s homes. Torsten Bell, the former chief exec of the Resolution Foundation, is an unapologetic champion of its adoption. Bell is optimistic that this measure will make the housing market as a whole fairer. Doing so would generate billions in new revenue for public services.
A recent report authored by Dr. Tim Leunig for the centre-right think tank Onward suggests that introducing a capital gains tax on primary homes could mirror the revenue generated by stamp duty. The proposal creates a new refundable tax credit for home buyers. Those buyers of properties over $1 million will incur a yearly tax on the value of their property after making that purchase.
Leunig’s research indicates a reasonable tax rate would be much higher. Homes worth between £500k and £1m would be taxed at a proposed rate of 0.54%. On properties over £1 million, the tax would move to a higher rate. This framework guarantees that wealthier homeowners start paying their fair share to the public coffers. At the same time, it shifts the burden from lower-value properties.
“This is a huge barrier to movement, from first-time buyers to downsizers.” – Colleen Babcock
The debate over property taxes has underscored fears of losing out on new revenue, too. In the last financial year, the UK government took £11.6 billion in revenues from stamp duty alone. Eliminating this tax could open the door for a better designed capital gains tax to pass. This is a seismic shift in how the federal government will receive its revenue.
Labour is in full policy preparation mode as the next election comes looming closer. The debate on property tax has been toxic. The party pledges to exempt main residences from capital gains taxation. Alternatively, experts are calling for a new taxation system that reflects the realities of today’s housing market and its complexities.