The Treasury is reportedly exploring the most sweeping shake-up of property taxation in a generation, considering options that could replace council tax and stamp duty with a new levy based on today’s housing values. While no formal proposals have been announced, reports suggest officials are modelling a “proportional property tax” that would fall more heavily on higher-value homes. In London, where average house prices are well above the national figure, such a change could leave many households facing bigger annual bills.
The move stems from a long-acknowledged flaw: council tax is still pegged to 1991 valuations, meaning a modest terraced home in outer London often pays a similar bill to a house worth millions in the capital’s most expensive postcodes. Economists have long described the system as outdated and regressive, but any reform has been politically fraught. With Chancellor Rachel Reeves having ruled out hikes to income tax, VAT and National Insurance, property is one of the few areas left where the Treasury can look for revenue.
One blueprint reportedly under review is inspired by think-tank Onward’s proposal to abolish both council tax and stamp duty. In its place, homeowners would pay a proportion of their property’s current market value each year—around 0.44% for properties up to £500,000, with higher charges on value above that threshold. Stamp duty would be scrapped at the point of purchase, but under some versions of the model, owner-occupiers would face an additional levy at the time of sale. For London, where the average home now costs over £560,000, that would mean a large share of ordinary buyers falling into the higher-tax bracket by default.
Critics warn that this approach risks punishing households who are “asset-rich but income-poor”—a familiar profile in inner London. Older homeowners, many of whom bought long before the boom in prices, could suddenly be faced with tax bills far larger than they currently pay, regardless of their income. While outer boroughs with more modest housing stock might see reductions, the capital’s more expensive neighbourhoods would almost certainly shoulder higher costs.
Supporters argue that a proportional property tax would be fairer, ensuring that those with the most valuable homes contribute more, while easing burdens on those in lower-value properties. They also note it could improve mobility, as removing stamp duty might encourage more families to move rather than remain “locked in” by large transaction taxes. Yet sceptics point out that replacing one unpopular tax with another risks creating new distortions—especially if large levies are triggered on sale, potentially discouraging downsizing in the very areas where housing stock is tightest.
For renters, the effect would be indirect but significant. Any increase in ongoing costs for landlords tends to be passed on through higher rents, and London’s rental market is already under pressure. Tenant groups are likely to press the government to ensure that any redesign of property taxation does not further squeeze supply or affordability.
Nothing is settled, but the fact that the Treasury is modelling such fundamental changes suggests the status quo may not hold indefinitely. For Londoners, the stakes are unusually high: while reform could modernise a creaking system, it also threatens to sharpen the tax bite on the capital’s most valuable homes. As the autumn statement approaches, households across the city will be watching closely to see whether the government turns exploration into execution.