Stamp duty: government considering radical overhaul of property tax

The government is considering replacing stamp duty with a new national property tax, according to industry reports.

A new tax would impact sellers with homes sold for more than £500,000. Its aim would be to raise extra tax revenue while reducing the cost of moving for the majority of property buyers.

But what could a proposed shake-up of stamp duty mean for buy-to-let landlords?

‘Annual property tax’ could replace stamp duty

Ahead of the Autumn Budget, Chancellor Rachel Reeves is looking at replacing stamp duty with a national property tax on properties sold for more than £500,000.

Currently, stamp duty is paid by property buyers. There are various tax rates based on property values. For example, two per cent stamp duty is due on the portion of a property sale between £125,000 and £250,000, with five per cent due on anything between £250,001 and £925,000. 

First-time buyers don’t pay any stamp duty on the first £300,000 of the property sale price, and pay five per cent between £300,001 and £500,000.

The Guardian reports that the government is looking at suggestions from the Onward think tank to pass the tax onto sellers rather than buyers. It suggested that sellers of properties worth more than £500,000 would pay an annual tax of 0.54 per cent. And sellers of properties worth over £1 million would pay an annual tax of 0.81 per cent.

It’s important to note that any stamp duty changes would only apply in England and Northern Ireland. There are similar systems in place in Scotland (Land and Buildings Transaction Tax) and Wales (Land Transaction Tax).

Landlord stamp duty likely to remain

Under the current stamp duty system, buyers of second properties (such as landlords) pay a stamp duty surcharge of five per cent.

For example, this means they pay five per cent on the portion of a property’s value up to £125,000 and seven per cent on anything between £125,001 and £250,000. Read our full guide to landlord stamp duty for more information.

Reports suggest that the government is planning to keep these rules the same. This would mean that buyers of second properties would continue to pay high stamp duty bills.

It’s not yet clear how owners of second properties would be affected if they were buying and selling properties at the same time. For example, whether they would be expected to pay stamp duty on the property they’re buying and a national property tax on the property they’re selling.

New tax could impact just a fifth of sellers

Stamp duty is paid by an estimated 60 per cent of property buyers. A new tax on sales above £500,000 could impact just a fifth of sellers, according to reports.

The new tax could also be paid more frequently by property owners in certain parts of the country, according to estate agency Hamptons. Its analysis of Land Registry data shows that half (50 per cent) of English home sales over £500,000 are in London, with a further quarter (26 per cent) in the South East.

How could stamp duty changes impact landlords?

If these proposed changes were introduced, there could be a rush to sell properties worth over £500,000. This could provide opportunities for landlords looking to buy larger properties. 

However, if stamp duty was replaced, over time sellers of these homes could inflate values to cover the extra tax. This would increase prices for landlords, who would also be required to pay the stamp duty surcharge.

As a result, fewer landlords might buy properties. This could lead to a shortage of rental properties and higher average rents.

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