Speculation grows around a new property tax system in the UK

Speculation grows around a new property tax system in the UK

Please note: The following article discusses speculative proposals and is not based on confirmed government policy.

As we approach the UK Autumn Budget on Wednesday 26 November 2025, speculation is mounting regarding the possible replacement of the current property tax system of Stamp Duty Land Tax, Council Tax and Business Rates.

Although no official announcement has been made, several reports and think tank proposals have sparked debate about what proposed change could mean for homeowners, buyers, landlords and the property market at large. With trillions of pounds tied up in UK property, reforming the way properties are taxed could be a tempting lever for policymakers.

The current system: Stamp Duty Land Tax, Council Tax and Business Rates
Stamp Duty Land Tax (SDLT) is a one-off tax that buyers pay when they purchase a property in England and Northern Ireland. The amount owed depends on the price of the property.

Residential properties valued below £125,000 are exempt, while first-time buyers benefit from relief on homes worth up to £300,000. For properties exceeding these thresholds, SDLT is calculated as a percentage of the home’s value.

For commercial property transactions, SDLT is not payable on purchases under £150,000. Above this threshold, rates start at 2% and increase to 5%, depending on the value of the transaction.

In the last financial year, SDLT generated £11.6 billion for the Treasury, making it a significant source of government revenue. Removing or replacing this tax would therefore require a robust alternative.

Council Tax is an annual charge that funds local authorities and is based on the value of a residential property as assessed in 1991 for England and Scotland, or 2003 for Wales. If a property was built after those dates, it is valued as if it existed at that time.

Business Rates are a tax charged on non-residential properties such as shops, offices and warehouses. The amount due depends on the estimated rental value of the property.

Speculated changes
National Property Tax and Local Property Tax
The UK government is reportedly considering a National Property Tax to replace SDLT and a Local Property Tax to replace Council Tax for residential properties and Business Rates for commercial properties.

Both taxes would be charged annually based on the current market value of the relevant property, rather than one-off transaction costs based on outdated valuations.

Reports do not mention specific figures, however, Treasury officials have been said to be informed by the findings of a paper by Tim Leunig at ‘Think Tank Onward’, which suggests the National Property Tax would involve:

• an annual tax rate of 0.54% on the portion of the property’s value between £500,000 and £1 million, and 0.81% for properties over £1 million; and
• the tax applying to owner-occupied properties after a sale, meaning sellers (rather than buyers) would pay the tax.

There has also been speculation regarding whether a Local Property Tax could replace Council Tax and Business Rates, though details remain limited. As proposed in the Onward report, this would involve:

• a tax on properties valued up to £500,000, payable by the property owner or landlord, not the resident;
• the amount of tax varying depending on the property’s value, subject to a minimum payment of £800 per year; and
• all of the revenue collected from this tax going directly to local councils.

National Insurance on rental income
It has also been proposed that in addition to Income Tax, landlords may be required to pay National Insurance (NI) on rental profits. This would apply to rental income up to £50,270 at a proposed rate of 8%, with a reduced rate above this threshold. Retired landlords (above state pension age) would be exempt.

The rationale behind this change is to close a fiscal gap of £40 to 50 billion without raising headline rates for Income Tax, VAT, or NI for “working people”. It seems extending NI to rental income is a way to raise revenue without breaching manifesto commitments. This change could significantly reduce the take-home income for many landlords.

Consequences
The introduction of this new tax system could have a wide range of implications for the property market, homeowners and landlords, as well as on government finances.

Potential advantages:

• Increased market mobility: shifting the tax burden from buyers to sellers may reduce barriers to purchasing, as buyers would not be deterred by large upfront taxes;
• Fairer valuations: the new system would remove reliance on outdated valuations, resulting in fairer outcomes; and
• Stable revenue streams: annual charges would provide a predictable income for government and local authorities.

Potential drawbacks:

• Higher ongoing costs: for homeowners and landlords, particularly those in high-value regions. This shift to ongoing annual charges could affect cash flow and investment strategies for landlords in particular;
• Reduced profitability: for landlords and investors, particularly those with small or medium sized portfolios. In particular, the introduction of NI on rental income could cut net rent yields significantly;
• Risk of price inflation: sellers or landlords may build these tax charges into their asking prices and simply move the costs downstream, so property prices may artificially inflate even if the overall tax is less than current SDLT rates;
• Complex rollout process: involving a robust revaluation of all properties; and
• Revenue uncertainty: there is the risk that annual levies may not match the upfront revenue generated by the current tax system, creating financial uncertainty. For example, around only a fifth of property sales would be subject to a National Property Tax, compared to around 60% of home buyers who currently pay SDLT.

Final thoughts
While the idea of a new property tax system is gaining attention, it is important to remember that nothing is confirmed. The Chancellor has not officially proposed such a system, and any changes would require significant consultation and legislation.

For now, homeowners, buyers and landlords should stay informed and watch the Autumn Budget closely. If implemented, this could mark one of the most significant shifts in UK property taxation in decades, with business facing an evolving legal environment.

At Hay & Kilner, our dedicated Commercial Property Team provides tailored legal solutions to help you navigate complex transactions with confidence and adapt to whatever changes lie ahead. Get in touch to find out how we can help you.