Londoners could be made to pay up to £950 more a year under radical new proposals put to the government to fix England’s “broken” property tax system.
A new report from the Resolution Foundation calls for the complete abolition of council tax and stamp duty in favour of a new levy, tied directly to the value of residential property.
London households underpaid by £3.1bn in property taxes in 2024-2025 due to the current “outdated” valuation system, the influential think tank finds.
Under the proposed plan, 80 per cent of London households would face higher bills, with the top 20 per cent of households seeing an average increase of £950 a year.
In total, nearly two-thirds (68 per cent) of households across the capital would pay at least £250 more annually, while 20 per cent of low-income single residents would see their bills fall through expanded rebates.
This ‘proportional property tax’ would be charged at a flat 0.7 per cent of property value, researchers add, phased in over four years.
Hannah Aldridge, senior research and policy analyst at the Resolution Foundation, said: “The UK raises more tax revenue from the homes we live in than most other advanced economies. Unfortunately, our two main housing taxes – council tax and stamp duty – are terribly designed, grossly unfair and economically harmful.
“Our housing taxes fall heaviest on those least able to afford them and have turned into a huge £3.1 billion subsidy for those living in London – paid for by households across the rest of England.
“The economic and fairness case for overhauling our housing taxes is clear. But the politics of reform has got hung up on those who lose out – such as those living in gentrified areas of London – even though most households in England would pay less tax.”
Outside of London, around 61 per cent of households will be overpaying on their property tax by 2030-2031, the report finds. This rises to 85 per cent of households in the North East, at an average of £710 a year, which would be saved under the proposals.
In England, the current council tax system remains based on bands first set in 1991, which experts argue have long been outdated.
Due to the rate of London house price increases compared to the rest of the country in the three decades since, the mechanism has given rise to cases like a standard home in Blackpool paying nearly £600 more than a £10m property in Mayfair.
To tackle this, former chancellor Rachel Reeves announced last year the high-value council tax surcharge – or “mansion tax” – which will see owners of properties valued at over £2 million start paying a regular annual charge worth up to £7,500 from April next year.
However, the Resolution Foundation argues this change will not be a substantial driver of growth, forecast to raise around £400m per year.
Ahead of the Budget, it has been reported prime minister Andy Burnham is considering an expansion to the plans, lowering the threshold to include properties worth at least £1.5m. Tax analysts say this could double the yearly receipts from the levy to £800m, and nearly double the number of affected properties from 123,000 to around 245,000.
A government spokesperson said: “We have reformed housing tax to address a longstanding unfairness in our country, where a Band D home in Darlington or Blackpool pays more in council tax than a £10 million mansion in Mayfair.
“As has always been the case, decisions on tax are a matter for the chancellor to set out at fiscal events, rather than routinely commenting on rumour, speculation or proposals.”
