A Fairer Property Tax

Britain’s current approach to household taxation needs reform. Council tax and stamp duty are unpopular, unfair and impractical.

Council tax is regressive, leaving average homes in poor places paying more for local government than mansions in rich areas. A Band D home in Blackpool pays £2,277 in council tax a year, for example, while in Westminster, a Band D home pays less than half: £973.16. Reducing council tax is the second most popular tax cut among voters. 

Stamp duty – paid on homes worth more than £250,000, with a higher threshold for first-time buyers – makes moving more expensive, suppressing economic growth and homeownership. In the South East, homes valued below £250,000 sell every 11 years, while more expensive homes are sold only once a generation, every 26 or 27 years. Only 23% think stamp duty is fair.

Onward proposes a new innovative way to replace council tax and stamp duty with a proportional property tax. A Fairer Property Tax was written by Onward’s Chief Economist, Tim Leunig, who invented the furlough scheme and worked as a senior government advisor for over a decade.

Onward’s “horizontal” proportional property tax to replace council tax and stamp duty is a new idea. It would see homeowners – not tenants – paying a proportional tax toward local services on house values below £500,000 and a national levy on the value above. A minimum payment of £800 for any house would be set to help fund local government. The local rate would be set by councils, but an average rate of 0.44% would replace council tax income. The national rate could be 0.54% for homes between £500,000 and £1 million, and 0.81% on any value above. 

Unlike other proposals, which would see a single proportional tax introduced where councils and the Government each set part of the rate and share the revenue, this proposal is simpler. It means homes in Barnsley, where few pay stamp duty, would be valued high enough to start paying a national property tax. Such an approach would better fund local authorities without councils in poorer areas setting a high value or relying more on central Government handouts.  It would also avoid a scenario where the majority of property taxes for people living in affluent areas would go to the nation’s coffers instead of funding local services. 

Replacing council tax with a local proportional property tax on homes under £500,000 is revenue neutral. It also reduces the number of homes that need to be valued from 25 million to 16 million. These homes are also simpler to value. Replacing stamp duty would take longer, initially costing £10 billion in lost revenue a year, as anyone who has already paid stamp duty on their home should be exempt – so they aren’t taxed twice – until they move. Eventually, it would present a more reliable income source for the Government. 

Tim Leunig, Onward’s Chief Economist, said: “Council tax and stamp duty are terrible taxes. They are unfair and unpopular, and both should be replaced with proportional property taxes. Council tax should be replaced by an annual tax on all houses, and stamp duty with an annual tax only on houses worth £500,000 or more. 

“These proposals would make it easier and cheaper to move house, for a better job, or to be near family, as well as being fairer. It should not be the case that a terraced house in Burnley pays more than a mansion in Kensington – and it wouldn’t be under these proposals.”

Andrew Dixon, Founder of Fairer Share, said: “In recent years, the push to reform local government finance has gained significant traction. A growing consensus among parliamentarians, think tanks, economists, and campaigners underscores the urgent need to replace the regressive Council Tax and the anti-aspirational Stamp Duty with a more equitable Proportional Property Tax. Tim Leunig has made three key recommendations: implementing a clear distinction between national and local funding, introducing a minimum payment to safeguard essential local services, and advocating for a more efficient property valuation process. These innovative proposals deserve serious consideration from the new Government, and we strongly urge them to give this paper the attention it merits.”