UK Property Tax Shake-Up: What You Need to Know
Heading into the Autumn Budget
As the UK braces for the Autumn Budget 2025, Chancellor Rachel Reeves is considering a major overhaul of property-related tax policies to address a staggering fiscal gap of £20–40 billion.
Importantly, the government maintains its pledge not to raise income tax, VAT, or national insurance, steering attention instead to property wealth.
1. Capital Gains Tax on High-Value Main Homes
One of the boldest proposals is to end the current exemption from Capital Gains Tax (CGT) for high-value primary residences. The change would affect homes above a proposed £1.5 million threshold, impacting an estimated 120,000 higher-rate taxpayers, who could face CGT bills nearing £200,000 upon sale.
CGT Rates:
18% for basic-rate taxpayers
24% for higher-rate taxpayers
This “mansion tax” approach has drawn warnings from property experts that it might lock older homeowners into their properties, especially those who are asset-rich but cash-poor, like many pensioners potentially reducing housing market mobility.
2. National Property Levy: Replacing Stamp Duty
A parallel idea is to replace Stamp Duty Land Tax (SDLT) with a new national property levy:
Proposed threshold: properties valued over £500,000
Levy structure:
0.54% annually on the portion above £500,000
1.81% on the portion above £1 million (via an additional 0.278%)
The levy would be paid when the owner sells the property, not upfront like SDLT. It affects only about 20% of home sales, concentrating the burden on higher-value transactions.
Although intended to simplify taxation, critics warn this may raise asking prices (as sellers adjust) and discourage downsizing, possibly slowing the housing market.
3. Council Tax Overhaul: Toward Proportional Local Levies
The government is also eyeing a fundamental reform of council tax, which currently relies on outdated 1991 property valuations:
One option includes a local proportional property tax, levied annually:
Minimum payment of £800 per year
0.44% on property value proposed to match current council tax revenues
These reforms are seen as complex and politically risky, potentially requiring a second Labour term to fully implement.
4. Why Now? The Fiscal Imperative and Ideological Balance
Facing sluggish growth and high borrowing expectations the National Institute of Economic and Social Research projects a UK borrowing excess of £41.2 billion by 2029/30—the government needs new revenue streams.
Property and capital tax changes offer politically feasible revenue without breaking manifesto promises around income and consumption taxes. Previous tax reliefs on gains from primary residences cost the Treasury £31 billion annually, making this a tempting target.
An opinion letter published on 22 August 2025 argued that targeting homeowners at the point of sale is both efficient and fairer, as owners often have the liquidity to pay then—not like wealth taxes or inheritance levies.
5. Key Numbers at a Glance
Capital Gains Tax (CGT) on primary residence gains
Applies on gains above £1.5 million.
Around 120,000 homeowners will be affected.
Tax rate: 18% (basic rate taxpayers), 24% (higher rate taxpayers).
Some homeowners may face tax bills of up to £200,000.
National Property Levy (replacement for SDLT)
Threshold: applies on property values above £500,000.
Paid by sellers upon sale.
Rate: 0.54% on value above £500,000, plus 0.278% on the portion above £1 million.
Local Proportional Property Tax (council tax replacement)
All homes will be revalued.
Paid annually by owners.
Minimum: £800 per year.
Rate: around 0.44% of property value.
What’s Next?
None of these proposals have been finalized. They are under intense review ahead of the Autumn Budget, likely in October 2025. The government aims to boost fairness and revenue, while navigating strong public pushback especially from middle-class homeowners and retirees.
Final Thoughts
The UK's property tax landscape in 2025 is at a crossroads: bold reforms are on the table, driven by dire fiscal pressures and the need to modernize outdated systems. At the same time, the government must balance political sensitivity, economic impact, and social equity.
If you're a homeowner especially in high-value regions like London, this could directly affect your finances soon. All eyes are now on the Autumn Budget for final verdicts.
Quick Recap
CGT on primary residences above £1.5M → 24% for higher-rate, 18% for basic-rate; ~120K homeowners affected; potential £200K tax bills.
New sale-based property tax on homes above £500K, likely replacing stamp duty.
Annual proportional property levy may replace council tax, scaled by property value: 0.44% up to £500K, 0.54% for next slice, and 0.81% above £1M.
All proposals are under active review ahead of the Autumn Budget expected in late October 2025. Keep an eye out, if any of these reach final approval, it would have lasting implications for millions of homeowners.
