Treasury Committee Hearing: Panellists Call for Property Tax Reforms

The panel comprised (left to right in the photo): Kate Willis, Property Taxes Technical Officer at the Chartered Institute of Taxation (CIOT); Richard Donnell, Executive Director of Research at Zoopla; Professor Tim Leunig, Director of Economics at Public First Consulting and former senior civil servant; and Kirstie Allsopp, TV presenter and property expert.

Opposition to stamp duty land tax

All witnesses agreed that stamp duty land tax (which most of them referred to simply as stamp duty during the hearing) distorts the housing market and reduces labour mobility. Kate Willis set out the CIOT's framework for evaluating taxes, explaining that you should look at criteria “like ease of administration, ease of collection, not easily avoided, raises revenue, does not distort economic transactions or activity, and is generally acceptable to the public. If you look at SDLT on those, it probably ticks three of the boxes, but not the other ones."

Willis noted that while stamp duty is relatively easy to collect and difficult to avoid, "economists are almost universally agreed that it distorts economic activity."

Richard Donnell highlighted the regional disparities created by the tax, noting that "between 80% and 98% of homeowners are paying stamp duty" when they move, with particularly high bills in London and the south-east. He warned that "sales over half a million pounds are 70% of the receipts, and sales over £1 million are 40% of the receipts," demonstrating how heavily the tax leans on higher-value properties in London and the south-east.

Professor Leunig argued forcefully that "every single person in the country is a loser from stamp duty land tax, because it restricts people from moving." He explained that the tax reduces GDP and overall tax returns by preventing people from moving to better job opportunities. However, he cautioned that simply abolishing stamp duty without replacing it with another property tax would cause house prices to rise, merely making existing homeowners wealthier.

Kirstie Allsopp illustrated the practical impact with examples, noting that someone in Wales moving from a £550,000 house to a £650,000 house would pay £29,500 in stamp duty. She observed: "The average in a lifetime used to be five; it is now four" house moves, and expressed concern that "young people buying more expensive houses than they can really afford because they know they can't pay stamp duty twice."

Asked whether SDLT should be abolished, Allsopp, Leunig and Donnell said it should while Willis said this was not something she and CIOT took a position on.

Market impact and speculation

Donnell reported concrete evidence of market disruption from speculation about stamp duty changes, revealing that "over £1 million, they are all down by nearly 10% year on year since the first stories appeared in August. The market over £500,000 is 4% down and below £500,000 the market is pretty flat."

He explained the wider economic effects: "Turnover—the number of homes that transact—does have a multiplier effect in the economy, basically. You can see the impact on the white goods spend, or people doing DIY on and improving their property."

Professor Leunig's proposals for reform

Professor Leunig presented a detailed proposal for replacing SDLT with an annual property tax. He explained: "Rather than paying stamp duty up front, people should pay an annual payment for however long they live in the house." He argued this would be fiscally neutral if the government properly stated its accounts, including both future liabilities and assets. He observed that an annual tax “is a much more reliable source of income… than a transaction tax”.

On concerns about the transition, Leunig acknowledged: "If you apply the new annual tax retrospectively to the person who moved house last week, someone will say, quite rightly, 'That's unfair'—they are paying twice. If you do not, however, apply it retrospectively, as Ms Allsopp says, they have an incentive not to move. You just have to choose one of those. That is the truth. There is no beautiful answer to that."

For council tax reform, Leunig proposed making it proportional, but with a minimum payment of £800 and capping valuations at £500,000 for local purposes, with higher values captured by a central government annual tax. He explained: "I do not have to value any property under £180,000, because, whatever its value, it is still going to be paying £800." He would levy it in the owner but he said he was not wedded to that.

SDLT loans and credits

Luke Murphy MP asked about a proposal from Professor John Muellbauer, that if you have just moved and paid stamp duty, the government could offer a tax credit against future annual property tax liabilities. Leunig was concerned that the proposal seemed complicated. He wondered whether people would want to take on a debt or credit like that. He suggested the civil service “should go out and run focus groups with people to see whether there will be interest in taking it up”.

Bobby Dean MP raised a proposal from the Tony Blair Institute about effectively giving a 20-year loan to people to pay off SDLT. Richard Donnell thought it a good idea, but was again worried about the complexity: “I am not an expert in the complexity of how you would roll it out for potentially a million transactions in the year ongoing and collect all the revenue moving forward—unless you do it from self-assessment tax or something like that.” Leunig said that, on a first reading, this looked “too good to be true”. He thought it better to focus on ‘plain vanilla’ solutions than complicated ones.

Council tax reform challenges

Willis highlighted the Welsh experience of council tax revaluation, noting: "They are going to revalue in 2028. They have undertaken consultations, set out a road map and a strategy and undertaken all sorts of educational initiatives." However, she cautioned that "council tax is generally quite an unpopular tax because of its salience and visibility—it is a dry tax charge."

Willis identified a fundamental issue with council tax: "On the one hand it is a tax collected to fund local government services, and on the other it is a tax by reference to property value. What is it trying to do? Is it trying to tax property value or is it trying to collect money? Those objectives are confusing, and they are contrary, aren't they?"

On the technical challenges of revaluation, Willis noted that new automated mass appraisal models being developed by the Valuation Office Agency "are cheaper and quicker" and "may enable long-term property tax reform or at least reduce a barrier to it."

Donnell explained the practical limitations of automated valuations: "If a property is very homogeneous with others—there are lots of similar properties around it—and the housing market is liquid, and there are no special features on the property, it is quite easy for a computer to value that property." However, he acknowledged difficulties with "the mill house in mid-Wales, or the castle overlooking the cliffs, or a particularly deprived area with a lack of economic growth and very low levels of housing activity."

Capital gains tax considerations

When asked about equalising capital gains tax on property with income tax rates, Willis raised practical concerns: "There are some administrative challenges with taxing main homes. The principle of private residence relief has been in place since 1965. People just do not keep records of their costs and improvements."

She also warned about system-wide effects: "If you change one element of the tax system, it has an effect on the other. If high-value properties are subject to CGT, that is going to reduce transactions at that level, which then has an effect on SDLT revenues. You need to look at it holistically."

Professor Leunig supported equalising tax rates on different types of income but without CGT on inflationary gains. He said that countries with CGT on owner-occupied property "always allow for roll-over relief. If you sell one house and buy another, you do not have to pay the CGT; otherwise, people would have an incentive never to move."

Additional property taxes

On the possibility of a ‘mansion tax’ on properties over £2 million, Willis warned about "threshold creep," citing the annual tax on enveloped dwellings: "That threshold started off at £2 million and it has now gone down to half a million."

Professor Leunig was sceptical of such a targeted tax, arguing: "I am not sure why someone who pays £2 million for a house should be taxed more than someone who spends half of that money on a house in the south of France, or on a yacht or anything else. If you are going to have a wealth tax, you should have a wealth tax, rather than isolating one form of wealth."

Implementation challenges

When asked why governments repeatedly fail to reform property taxes, Professor Leunig acknowledged the political difficulties: "Nobody has ever won a vote reforming local taxation." He thought that both the poll tax and its replacement with council tax were disasters, explaining: "I can understand why politicians are often, in the nicest possible way, prudent/gutless, depending on your view of politicians."

On the practical timescale for reform, Willis cautioned: "We should not underestimate the magnitude of system change." The collection system works efficiently—Willis noted that the current 14-day payment deadline for stamp duty "is a very efficient way of collecting tax"—but fundamental reform would require substantial systems investment.

Rental market impacts

Willis highlighted an often-overlooked issue with the rent-a-room scheme, where the threshold "has not changed for a number of years, and probably does not reflect rents in areas." She recommended that "looking at those thresholds would be a very good idea. It is part of good custody of the tax system—making sure that that is achieving its policy intent."

Supporting housing supply

On tax changes to stimulate housing supply, Willis told the Committee that CIOT "have just written a paper on the tax barriers to supply and there are a number of technical changes that we think would address obstacles in supply." She agreed to send it to the committee.

Donnell warned about the cumulative impact of costs on development: "The cost of building has gone up by 20% in two years, but sales values have only gone up by 1% in London." He singled out the proposed landfill tax as particularly problematic, noting it "will potentially add a lot of money to every single home."

Conclusions

Chair Dame Meg Hillier summarised the hearing's findings: "The easy part, based on what our panel has said, is that no one likes stamp duty land tax. The hard part is what follows it and what that means for council tax and income for the government to spend on public services."

This report is based on the transcript of the session which can be read here. Please note that this is an uncorrected transcript and neither MPs nor witnesses had at the time of writing had the opportunity to correct the record so it may be subject to change. The drafting of this report was assisted by Claude.AI but it has been checked, edited and added to by CIOT's External Relations Team.