Will Your Home Be Hit by the New £500,000 Property Tax Threshold?

What You Need to Know About the Proposed “Proportional” Property Tax

The UK’s property tax system has long been under fire. Homeowners complain about stamp duty being a heavy, upfront cost that stops people from moving, while council tax is based on outdated 1991 property valuations. Now, a new proposal is on the table: replacing stamp duty with a “proportional” property tax that would apply to owner-occupied homes worth more than £500,000.

So, what does that actually mean for homeowners, buyers, and sellers? Let’s break it down.

The Basics

• Threshold: The tax would only apply to homes valued above £500,000.

• Rates: Early suggestions include charging around 0.54% on the portion of value between £500,000 and £1 million, and a higher rate (around 0.8%) on anything above £1 million.

• When Paid: Unlike today’s stamp duty (paid by the buyer upfront), this levy would generally be paid when the home is sold by the owner.

In other words, if you sell a £750,000 house, the proportional tax would only apply to the £250,000 portion above the £500,000 threshold.

Why Change the System?

1. Fairness – Many people argue that stamp duty is unfair: it punishes those who want to move and makes housing chains harder. A proportional tax spreads the cost more evenly.

2. Mobility – Removing stamp duty could make it easier for people to upsize, downsize, or relocate without facing huge upfront costs.

3. Revenue stability – Stamp duty receipts swing wildly with the housing market. A proportional system could smooth things out.

4. Progressivity – The tax would target higher-value homes, leaving most properties (especially outside London and the South East) untouched.

The Drawbacks

Of course, no tax reform is without controversy:

• Regional imbalance – In London and parts of the South East, where average home values are far higher, many “ordinary” homeowners would fall into the new tax bracket. In other regions, very few would.

• Cash flow on sale – Owners who bought years ago but now sit on a property worth £500k+ could face a large bill when they sell, even if they aren’t especially wealthy.

• Valuation headaches – How to keep property valuations fair and up to date is always tricky.

• Politics – Property tax is one of the most sensitive issues in British politics, and any reform will be a tough sell.

Who Wins, Who Loses?

• Winners:

  
  

  • Buyers, who would no longer need to stump up thousands in stamp duty at the point of purchase.

  • Homeowners with properties under £500,000, who may see little change at all.

  
  

• Losers:

  
  

  • Homeowners in high-value areas, especially London, who could face new bills on sale.

  • Those hoping to pass down property wealth without facing new tax liabilities.

  
  

What Happens Next?

The idea is still under consultation, but it’s gaining traction among policymakers. Reports suggest we might see details in the Autumn 2025 Budget. If adopted, this would be one of the biggest shifts in the UK’s property tax system in decades.