UK Debates New Tax on Expensive Homes

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The UK government is exploring ways to close a budget gap running into tens of billions of pounds. According to The Guardian, Chancellor Rachel Reeves is considering a new tax on luxury homes, which could raise up to £40 billion and serve as an alternative to increasing mainstream taxes on income and consumption.

Proposed Measures

Among the options:

Ending capital gains tax relief on primary residences valued over £1.5 million. If passed, owners would pay 18% at the basic rate and 24% at the higher rate when selling. This alone could generate £30–40 billion.

An annual levy on expensive properties, suggested by the think tank Onward: 0.54% on value above £500,000 and 0.81% on value over £1 million.

Other proposals include restructuring transaction and local property taxes. Stamp Duty Land Tax (SDLT) could be replaced with a new national sales tax for resident homeowners. Since April 1, 2025, SDLT thresholds have already been reduced, raising costs for first-time buyers by about £34 million in total, and pushing some London buyers’ tax bills to over £11,000.

Broader Tax Changes

The reform debate comes alongside the abolition of the non-domicile tax regime from April 6, 2025. Foreign residents living in the UK for 10+ years are now liable for inheritance tax on worldwide assets. Experts say this improves fairness but makes the UK less attractive for global investors.

Impact on the Property Market

Market signals show shifts at the top end:

In May 2025, listings of homes priced above £5 million jumped 22%, while demand fell 15%.

Price reductions increased by 45% compared to 2024.

Buyers from the US were the only source of growth, with their share of London deals rising from 3.3% in late 2024 to 6.1% in H1 2025, the second-largest jump in 12 years.

Still, this has not offset declining activity from investors in Asia, the Middle East, and Russia. Analysts at Savills and Black Brick forecast central London prices could fall 4–10% by the end of 2025.

Yet, Halifax reported a 0.4% rise in July prices — the strongest monthly increase since January — bringing the UK average to £298,237 ($398,730), up 2.4% year-on-year. Cheaper credit and rising wages have partially cushioned the tax reforms’ impact.

Political Debate

Critics argue that taxing expensive homes could discourage older homeowners from downsizing, reducing housing market fluidity. Supporters counter that large fortunes locked in property must be tapped to balance the budget fairly.

Prime Minister Keir Starmer stressed that Reeves’ upcoming budget aims to improve living standards rather than impose sweeping tax hikes. However, the National Institute of Economic and Social Research (NIESR) warns that the UK fiscal deficit could hit £51 billion, driven by rising debt servicing costs and the government’s reluctance to cut social spending.