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How to put England’s broken housing taxes on firmer foundations

Hannah Aldridge
Hannah Aldridge
Mike Brewer
Mike Brewer
Matthew Cavanagh
Matthew Cavanagh

This briefing note examines how England taxes residential property and sets out a roadmap for replacing Council Tax and Stamp Duty with a system that is fairer, more efficient, and does not penalise the parts of the country where house prices have risen least.

Housing taxes matter. The UK raises more from property taxes than any other OECD country: 3.7 per cent of GDP in 2023 against an OECD average of 2 per cent. But we raise that money badly. Stamp Duty discourages moves that would put people in the homes and nearer to the jobs that suit them best. Council Tax bills still rest on 1991 valuations, and since 1995, prices have risen 7.3-fold in Inner London against only 4.2-fold in the North East. The result is a tax system that holds back growth and bears down hardest on cheaper homes: by 2030-31, the average effective annual tax rate on a £100,000 home will be almost three times that on a £1 million home.

We set out a revenue-neutral alternative: a proportional tax charged at 0.7 per cent of property value, paid by occupiers, with a rebate scheme that protects poorer households and defers bills for those who are asset-rich but cash-poor. Getting there means starting now with an up-to-date database of valuations, reforming Council Tax and Stamp Duty together rather than separately, and phasing in changes to bills so that the transition is manageable for the losers as well as the winners.

Key findings

  • The UK raises more in property taxes, relative to the size of its economy, than any other OECD country – 3.7 per cent of GDP in 2023, against an OECD average of 2 per cent – but the design of those taxes is poor. By 2030-31, the average effective annual tax rate on a £100,000 home, taking Council Tax and Stamp Duty together, will be almost three times that on a home worth £1 million.
  • London is the clear winner. Relative to the value of its housing, London underpaid £3.1 billion of tax in 2024-25. If the rest of England had their homes taxed at a rate as low as that in London, that would amount to a £12.3 billion tax cut.
  • The current system creates more losers than winners. Measured against uniform proportional property tax, 61 per cent of households in England will be overpaying tax by an average of £430 a year by 2030-31, while 36 per cent will be underpaying by an average of £680 a year.
  • The regional gap is stark. In the North East, 85 per cent of households lose from the current system, by an average of £710 a year by 2030-31. By contrast, four-fifths (80 per cent) of households in London will be underpaying, by an average of £950 a year.
  • This is not only a regional story. Almost two-thirds (63 per cent) of households below the 80th percentile of the income distribution lose out from the current system, while over half (56 per cent) of households in the top 5 per cent will be underpaying compared to a proportional system.

Recommendations

  • The Government should use the Autumn Budget to launch the work of building an up-to-date database of property valuations. This is the precondition for almost any sensible reform, and will take at least two years to complete.
  • Council Tax should be replaced with a proportional property tax charged at a single rate of 0.7 per cent of value. The reform should be revenue-neutral, charged on occupiers, and accompanied by a rebate scheme that protects poorer households and allows bills to be deferred until sale for those with substantial housing equity but little income.
  • Council Tax and Stamp Duty reform must come together. Abolishing Stamp Duty in isolation would be a large giveaway to the best-off and to established owners, and would leave the overall property tax system even more regressive.
  • Ministers should commit to leaving Stamp Duty unchanged for the rest of this Parliament to steady the housing market and announce – well before any phase-out begins – that Stamp Duty paid during the transition will count as a credit against future property tax bills.
  • The Government should launch a commission on residential property taxes to build the consensus that a reform of this scale requires, including how to phase in changes in bills for losers and winners alike.

Further reading

Home economics
How to put England’s broken housing taxes on firmer foundations
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Hannah Aldridge, Mike Brewer, Matthew Cavanagh
Saving private renters
Why the Government should unfreeze Local Housing Allowance
·
Hannah Aldridge, Mike Brewer, Stephen Hunsaker, Lindsay Judge
Policy Landscape 2026
·
Anand Menon, Ruth Curtice

https://doi.org/10.63492/kpyf844

Hannah Aldridge
Hannah Aldridge Senior Research and Policy Analyst
Mike Brewer
Mike Brewer Deputy Chief Executive
Matthew Cavanagh
Matthew Cavanagh Senior Economist