As speculation intensifies ahead of the Autumn Budget, property owners should be aware of several potential tax reforms that could significantly impact their financial planning. With a projected deficit of around £45 billion, the Treasury is under pressure to raise revenue, yet the government’s manifesto rules out increases to income tax, VAT, or employee national insurance contributions.
So where might the axe fall? Property taxation is emerging as a likely target.
A new property tax in place of Stamp Duty?
Several media outlets report that the Treasury is considering scrapping Stamp Duty Land Tax (“SDLT”) – a one-time payment made by buyers on properties valued above certain thresholds – and replacing it with a proportional annual tax based on market value.
This idea stems from a proposal by Dr Tim Leunig for the centre-right think tank Onward. Under their suggested model, a new “national property tax” on owner-occupied homes worth over £500,000 will be introduced with an annual levy of 0.54% on the value above that threshold. Additional supplements may apply to homes worth over £1 million, potentially raising the effective rate.
Capital gains tax: a new cap on private residence relief?
Although two thirds of UK adults are homeowners, few pay capital gains tax (“CGT”) when selling their homes – in large part thanks to private residence relief (“PRR”).
What is PRR?
PRR is a relief designed to ensure that individuals selling their main homes in which they have lived for the duration of their ownership do not fall within the scope of CGT.
The technicalities of PRR are fairly complex, but the core principle is straightforward: any gain arising on the sale of your main residence will be exempt from CGT. Under the current rules, the availability of relief is broadly determined by the duration of occupancy, not the property’s value. If you have occupied the property as your main residence for the entire duration of your ownership, the entire gain is exempt from CGT.
If, on the other hand, you have occupied the property as your main residence for half of the duration of your ownership, generally only half the gain is exempt.
What might change?
According to The Times, the Treasury is considering introducing a cap of £1.5 million on PRR based on a property’s price or market value.
As the potential cap on PRR is, of course, speculative, the finer details of how this restriction could operate are unknown. For instance, we do not know whether this cap would be a “cliff-edge” removal of all PRR for properties valued above the £1.5 million threshold, or a more progressive taper.
It is also unclear if this would affect the treatment of capital losses which, under current rules, are disallowed to the extent that a property is eligible for PRR.
Reforming the CGT uplift on death
Under current rules, inherited property benefits from a CGT uplift, meaning the asset’s base cost is reset to its market value at the date of death. This effectively eliminates any unrealised gains accrued during the original owner’s lifetime. In other words, if the estate were to sell an asset on the very day that its former owner died, no CGT would be payable.
Despite previous calls from The Institute for Fiscal Studies and The Office for Tax Simplification to reform this apparent loophole, the mechanism has endured successive budgets and remains a longstanding feature of the UK tax landscape. Nonetheless, we should not discount the possibility that the CGT uplift may come under review as part of broader reforms to inheritance and wealth transfer– particularly in light of measures introduced in the previous budget.
National insurance on property income
It has also been reported in the media recently that the Chancellor is considering applying National Insurance to rental income in the next Budget. This is expected to earn up to £2 billion of revenue a year but could have a big impact on landlords’ tax liability and in some cases could effectively double it.
What should I do?
With multiple property tax reforms under consideration, residential property owners should tread carefully. While each proposal may seem independent, they could interact in ways that create unexpected tax exposure. For instance, an annual property tax might encourage earlier sales, but a PRR cap could increase CGT on those same transactions. Similarly, removing the CGT uplift on death could complicate succession planning, even as other reforms aim to re-balance tax burdens across ownership stages.
Although it may seem prudent to accelerate plans – particularly for those already preparing to sell – we advise against hasty decisions. These proposals remain speculative, and any attempt to pre-empt them could be undermined by anti-forestalling legislation. We recommend speaking with a qualified tax adviser to develop a strategy that considers the full scope of potential changes and aligns with your long-term goals.
Please note that this content is not intended to give specific technical advice. It is designed to highlight some of the key issues rather than provide an exhaustive explanation of the topics. Professional advice should always be sought before action is either taken or refrained from as a result of information contained herein.
