It's the last thing hard-pressed homeowners need – a tax raid by a cash-hungry Chancellor that could hit those in the South and older people hardest.

According to reports, Rachel Reeves has asked Treasury officials to consider plans to scrap stamp duty and council tax in favour of a new system which would put a much bigger burden on property owners, specifically those who own homes worth £500,000 or more.

The Treasury is understood to be considering a range of different options and is yet to decide on how taxes will change. 

But Money Mail understands it has not ruled out a complete overhaul of property taxes in England and Northern Ireland.

What is clear is that Ms Reeves has homeowners in her sights as she plans to raise taxes and fill the Treasury’s £51billion fiscal black hole.

Here we lay out the options on the table – and how they could affect you.

Stamp duty overhaul

One idea floated this week is to replace stamp duty with a new tax paid by the seller when they sell. This would only apply to homes worth £500,000 or more.

Stamp duty is the main property tax paid by homeowners in Britain. It is paid by homebuyers when they purchase a new home.

At the moment, buyers pay nothing on properties that cost less than £125,000. On the amount from £125,001 to £250,000, they pay 2 per cent, then on the portion from £250,001 to £925,000, they pay 5 per cent. 

Above that it increases to 10 per cent and then 12 per cent for the most expensive homes.

First-time buyers pay nothing on properties up to £300,000, then the same rates thereafter.

On a £250,000 property purchase, a buyer today would pay £2,500, and on a £450,000 home, £12,500.

The rate at which it might be charged under the plans is not known, but would likely be based on the property’s value. 

This would disproportionately impact those in the South-East, as well as older people downsizing from a larger, more expensive home to a cheaper one.

Andrew Marr, tax expert at Forbes Dawson, says: ‘If this happens, what Britain would broadly be moving to is the concept of “acceptably” expensive homes. 

If your home is beyond that, you will have to effectively pay a luxury tax. It creates a two-tier system of properties, above and below £500,000.’

It’s unclear whether the tax would be levied on the whole value of the property, or just the profit made between buying and selling. Currently, people pay capital gains tax on second homes, but not on their main residence.

‘It sounds as if they are putting some sort of capital gains tax on private residences,’ says Marr. 

‘Not charging people tax when their home rises in value is a pretty sacrosanct thing – and one of the only [tax-raising] ideas Rachel Reeves hasn’t already offended people with.’ 

This tax could distort the housing market by making people less likely to move home – a criticism already levied at the current stamp duty system. 

The negative impact of the tax on home moves was illustrated by the stamp duty holiday during the pandemic, when scrapping the tax below £500,000 led to a property market boom.

This affects people across the housing market. If older people are put off downsizing, they end up living in a big home unsuitable for their needs, but it also means there are fewer larger homes available for young families.

But some think paying the tax on sale, after the homeowner has benefited from house price rises, could soften the blow.

Simon Gerrard, chairman of Martyn Gerrard Estate Agents says: ‘The existing stamp duty regime is unfit for purpose and has had a chilling effect on the housing market.

‘This new tax would be paid by the seller, rather than the buyer, which means that it won’t be the same tax on aspiration that stamp duty currently is.’

It would also help first-time buyers in areas where a starter home costs more than the £300,000 threshold, as they wouldn’t be left with a tax bill when getting on the housing ladder. 

But it could also lead to inflated prices on more expensive homes as sellers price the tax bill in to their sale price.

Aneisha Beveridge, head of research at estate agent Hamptons, says: ‘Our expectation is that it will be put onto asking prices.

‘It can make the housing market quite fragmented. It will be good for upsizers but for those going back down the ladder, it will be less of an incentive.’

National property tax/council tax

A far more likely plan that officials are poring over is to replace stamp duty with an annual national property tax, again targeting those with higher-value homes.

The idea for this comes from a report last year by Tim Leunig, chief economist at centre-Right leaning think-tank Onward, which is said to be a key reference point for the Chancellor’s plans.

But any plans put in place by the Treasury would not have to follow these recommendations.

First, Mr Leunig suggests the current stamp duty is replaced with a new national annual property tax that does not apply to homes under £500,000.

On homes between £500,000 and £1million, there would be a levy of 0.54 per cent. Above £1million, the levy would be 0.81 per cent.

That would mean someone buying a £600,000 home would see an annual property tax of £540 from this first part of the plan.

On an £800,000 home, it grows to £1,620, on £1 million it reaches £2,700 and hits £10,800 on a £2 million property, Money Mail analysis shows – and those sums could rise with inflation.

Currently, stamp duty is £20,000 on a £600,000 home, £30,000 on £800,000, £43,750 on £1million and £153,750 on £2million.

In theory, at £600,000, a buyer would be far better off – it would take around 14 years (not including inflation) for those annual £540 payments to tick past £20,000.

On an £800,000 home, it falls to around 18 years and on £1million, 16 years, but on a £2million property, it’s roughly 14 years.

The second part of Mr Leunig’s revolution would be a local property tax to replace council tax.

This would be charged at 0.44 per cent a year on the first £500,000 of all homes, capped at £2,200.

For a £300,000 home, the bill would be £1,320 and for a £500,000 property or above, the full £2,200.

Currently, homes are put in bands varying from A-H and annual council tax bills vary wildly across Britain.

In Wandsworth, south London, the average council tax bill for someone living in a Band D property today is £990.07.

However, given the average property price there is £718,000, according to the Land Registry, a household would see bills rise to £2,200 under the new system. In areas where house prices are cheaper, households have much to gain.

In Burnley, Lancashire, the average Band D property currently pays £2,463.98 in council tax. However, as the average property price there is £121,000, households there could see their bills fall to the minimum £800.

The figures are similar for other areas, such as Kingston upon Hull and Nottingham.

On our £600,000 example home above, the local levy would add another £2,200 on top of the £540 national property tax, resulting in a total annual bill of £2,740. 

On £800,000, the burden would grow to £3,820 annually and on £1million, £4,900. For a £2million home, it’s £13,000 a year.

Speaking to Money Mail, Mr Leunig said his system would benefit anyone who moves home often, hitting those who stay put in the same home for years on end. 

‘This is better for the individual, in that they would no longer need to pay the full sum of stamp duty upfront,’ he says.

About three in five of home sales pay stamp duty at the moment. This alternative system, if adopted, would mean fewer people paid property taxes – around 22 per cent. However, those who did pay could have to stump up much more.

Mr Leunig says the rates would be linked to inflation and the property’s ‘value’ for tax purposes reset each time the house is sold

‘It will encourage people to move as and when they wish,’ Mr Leunig added.

‘Currently stamp duty stops people from moving, which is bad news for jobs and bad for families. At the moment it costs people an arm and a leg to move home.

‘What I am proposing will allow people to move home more freely. It will therefore encourage downsizing as well as upsizing.

‘The losers will be people who buy and then stay in their homes for many years or even decades.’

But experts say the change could create yet more uncertainty for homeowners, in a property market which has already been rocked by the pandemic and soaring mortgage rates in recent years.

Owners of homes around the £500,000 mark could also find themselves under pressure to devalue them if they want to sell, to appeal to buyers keen to swerve the new national property tax. Properties over that limit face becoming less desirable.

Richard Donnell, property expert at Zoopla, says: ‘This would create a lot of short-term disruption and uncertainty in the market, with the risk of cliff edges appearing around any value thresholds.’

It also raises the concern that existing homeowners could be hit with a double blow - having already paid stamp duty under the current system, then facing a new annual levy.

Mr Leunig’s report said it would be up to the Treasury to decide whether the new tax would apply to all homes, or only homes purchased once the new regime was in place.

The big question will be how much extra revenue a new property tax regime would generate for the Treasury. But those with family homes in London and the South are most likely to lose out.

‘Any family home will be impacted by this new tax,’ says estate agent Mr Gerrard. ‘If prices surge higher because of this new regime, how will anyone in and around London be able to afford to start a family?’

According to Rightmove, 59 per cent of homes currently for sale in the capital are worth £500,000 or more. 

Across England as a whole, 30 per cent of properties are over that threshold and would face paying the tax. In the South-East it is 39 per cent, in the East of England 29 per cent and in the South-West, 28 per cent. 

Homeowners in the North-East are least likely to have to pay, with just 8 per cent of homes worth half a million pounds or more. 

Experts have also queried how properties would be valued for tax purposes – who would do it and whether it would take into account the equity people had in their home or also include the amount owed on a mortgage.

This could disadvantage first-time buyers with large mortgages in expensive areas who perhaps only own 10 per cent of their home.

‘It doesn’t take into account that some people with high-value properties are leveraged to the eyeballs,’ said tax expert Mr Marr. 

This annual property tax would likely also be taken into account by mortgage lenders when assessing whether applicants could afford to borrow.

Mr Marr also questioned whether HM Revenue & Customs, which is already bursting at the seams, will be able to administer it properly. 

He adds: ‘At the moment, HMRC can’t respond to a letter within six months. The system is completely broken.’

There have been widespread calls for reform of council tax, which is still based on property prices from the early 1990s.

The average council tax bill for a Band D home in England in 2025-26 will be £2,280 but this varies hugely across councils, who set their own rates. It means some wealthy areas end up paying far less than those in more deprived places.

Renters would not have to pay a new property tax, as their landlord would be required to – but experts say landlords would simply increase their rent to cover the bill.

‘Whichever way you cut it, the renter will end up paying the cost,’ says Mr Marr.

This was also mentioned in Leunig’s report. He said councils should be allowed to set their own rate but that charging 0.44 per cent of the value of a house up to £500,000, with a minimum of £800 per household per year, would be enough to cover the current revenues local authorities make from council tax – £37 billion in the fiscal year 2023-24.

‘In less expensive areas of Britain, it should mean many people will find they pay less than they currently do in council tax,’ Leunig told Money Mail.

However, one property expert warns that it could hit house prices, especially in high-value areas which would bear the brunt of the new tax.

Tom Bill, head of UK residential research at estate agent Knight Frank, says: ‘Council tax reform is long overdue but any package of measures would need to be carefully calibrated to ensure it didn’t reduce transaction numbers, particularly in the sort of high-value markets the Government seems to be relying on to raise revenue.

‘The practical hurdles faced by the Government include a lack of bandwidth to undertake such a huge exercise, a short-term loss of stamp duty revenue and creating an electoral backlash when higher council tax bills land on people’s doormats.’

• Additional reporting: Lucy Evans