What will the Budget do on tax and housing?

Posted: November 5, 2025 | Author: julesbirch | Filed under: Budget, Stamp duty, Tax |Leave a comment

Originally written as a column for Inside Housing.

With three weeks to go until the Budget, speculation is mounting about potential tax increases on housing. 

Hemmed in by a manifesto that ruled out increases in rates of income tax, national insurance and VAT, the chancellor will have been looking at other options like council tax, stamp duty, capital gains tax and inheritance tax. 

Rachel Reeves offered few specifics in her speech on Tuesday morning but it seems clear that tax increases are on the way that could have far-reaching effects on housing.

But while it’s easy to think of changes that might raise more money or be electorally popular, or make the tax system fairer or improve the functioning of the housing market, achieving more than two of those aims at the same time is a real stretch. 

Doing all four is near impossible – and that’s before we even get to the welfare side of the Budget and the looming questions about Local Housing Allowance, the benefit cap and the two-child limit.

The leaks and lobbying ahead of the Budget have already reached fever pitch, with the refusal by housing secretary Steve Reed to rule out a mansion tax transformed into a front-page lead in the Daily Mail that one is on the way. 

Other kites being flown include removing the CGT exemption on homes worth over £1.5 million, charging national insurance (NI) on landlords’ rental income and increasing income tax at the same time as NI is cut (which would mean landlords, pensioners and the self-employed paying more).

The big ticket options for raising more money are fairly well known: the Treasury regularly quantifies the cost of tax exemptions from capital gains tax (CGT) for primary residences (£32 billion a year at the last count) and from VAT for residential rents (£7.7 billion) and zero rating VAT on new homes (£16.6 billion). 

There is more than enough there for any chancellor provided they do not mind a collapse in house moves and rents and new homes costing 20 per cent more. The point is to come up with ways to raise revenue that also improve the housing system. 

Making the property tax system fairer is relatively straightforward: it would be hard to come up with one more unfair and regressive than the one we have now. 

It is just as easy to reform tax to improve the housing market: stamp duty is the worst kind of tax from this perspective, suppressing transactions and ultimately demand for new homes. 

Simply scrapping stamp duty would be popular among aspirational voters (as Kemi Badenoch has worked out) but taken in isolation it would make the system even more unfair, with most of the benefits going to buyers and owners of the most expensive homes. 

The half-baked Tory plan would also cost £10 billion a year at a time when the chancellor desperately needs more revenue not less.    

All this is why the Treasury seems to be zeroing in on what many observers see as the ‘least worst option’: increased council tax. 

The simplest version of this might be to double council tax for homes in the two highest bands (G and H in England), raising almost £4 billion a year (see calculator here). Alternatively, Wales already has a Band I, Scotland is consulting on extra bands and England could do the same.

However, speculation about a ‘mansion tax’ on homes worth over £2 million is missing the point.

Unless the government opts for a complete, time-consuming and controversial revaluation exercise, the tax bands are absurdly still based on property values from 1991, with Band H kicking in at £320,000.

A new Band I, for example, might start at £420,000 at 1991 prices (the equivalent of £2 million now) but lots of properties like that might be caught on the cusp of single and double council tax and many home owners would challenge a banding that would not have been relevant until now.

Alternatively, a home owner could have turned a bungalow worth £310,000 in 1991 into a McMansion equipped with basement cinema, two extra storeys and a helipad worth £3 million now and the tax band could still be the same.

We are already seeing the sort of concerted media campaign faced by previous proposals for a mansion tax. Advance speculation is being encouraged to test the reaction.

And  council tax is meant to fund local government. An extra £4 billion a year would go some way to easing severe pressure on council budgets but Whitehall would have to find a way claw it back to fix the national finances. 

This would be a small step towards a more proportionate property tax but it would leave all the disadvantages of stamp duty intact. 

It would be fairer, and far better for the housing market, to tackle both at the same time, gradually transferring the tax burden from buying to occupying a home.

Previous governments have avoided reform of taxes on property fearing the unpopularity that finished off the poll tax and Margaret Thatcher.

But in tinkering around the edges of the problem they have created the broken system we have now.

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