Burnham considering replacing stamp duty

Replacing Stamp Duty and Council Tax with a 0.48% levy sounds brilliant on paper, provided you ignore how the real world works. Imagine telling a cash poor pensioner in a £600k home that they now owe nearly three grand a year, guess they’d better start downsizing or taking out equity release! Landlords facing doubled rates will obviously absorb the costs out of goodwill rather than passing them on to tenants, right? Wrong! And good luck accurately valuing pure land versus the house sitting on it across 25 million homes without setting off an endless barrage of legal appeals. Pure tax genius.

So what happens to the millions who have already paid? Nobody has answered that. Someone who bought a £500,000 home in 2023 handed over £15,000 in one lump, out of taxed income. Do they get a credit? A rebate? A holiday before the annual charge starts? Or do they just pay twice? Because the buyer moving in next door under the new rules pays nothing up front and starts on the same annual bill. Same street, same asset, two completely different tax bills, decided purely by timing. Which year did that become a fair basis for taxation?

Then there's the rate itself. Income tax arrived at under 1% and was sold to the public as a temporary measure. It is now 20%, 40% and 45%, with National Insurance on top. Council tax started in 1993 and has outrun wages ever since. Nothing holds 0.48% at 0.48%. Once the mechanism exists, the rate is just a number a future chancellor can move. 1%, then 2%, then 4%. And homeowners have no way out, because you cannot stop owning the roof over your head.

Scrapping stamp duty is an aim I've argued for, because it discourages people from moving and downsizing, and council tax is long overdue reform. So I welcome the ambition. My concern is the design. An annual charge set as a percentage of value falls hardest on London and the South East, and on those who are asset-rich but cash-poor, like the pensioner with no income to match a yearly bill. There is also a fairness problem for anyone who has just bought: they hand over a large one-off stamp duty bill, then start paying the annual charge on top, with no credit for the tax they have only just paid. And nobody has answered how you value 25 million homes every single year, when values move constantly and are open to challenge, as anyone who has dealt with a down-valuation knows. The principle is right and worth pursuing. This mechanism needs a lot more thought before it risks doing more harm than the tax it replaces.

This is messy. Just because people have a high value property, it’s doesn’t make them cash rich. Someone could be mortgaged up to the eyeballs, paying high energy bills and amidst a cost of living crisis and the PM is thinking of throwing another cost into the mix. What happens to the home owners that have already paid thousands in Stamp? This all comes at a time when Stamp Duty should be abolished or paused, not replaced by something more complex and expensive.

Scrapping stamp duty is something I've been calling for on first-time buyers for years, so I'm all for reform in principle, but a flat 0.48% annual charge on the whole property market is a much bigger and blunter instrument than that. My own proposal has always been narrower, exempting first-time buyers and downsizers while movers pay based on current property values, which avoids penalising people who are asset rich but income poor, like pensioners sitting in homes that have shot up in value with a fixed retirement income to pay an ever rising annual bill against. A land value tax is the more interesting option because it separates the tax from what you build on your own land, which actually rewards improving your home rather than penalising it. Complete reform of this system is a good idea and long overdue, but it's genuinely complex and the devil will be entirely in the detail

Replacing Stamp Duty with an annual property tax has real merit. Stamp Duty is effectively a tax on moving, discouraging people from downsizing, upsizing and relocating for work. Removing that barrier could improve housing supply, free up larger family homes and create wider economic benefits through home improvements, removals and increased consumer spending.

The biggest risk is the transition. If someone has just paid Stamp Duty, asking them to immediately pay a 0.48% annual charge will feel like double taxation. Without sensible transitional rules, buyers could simply delay moving until the new system starts, creating uncertainty and slowing the housing market.

The numbers also have to stack up. Will 0.48% raise as much as Stamp Duty and Council Tax combined? How often will properties or land be revalued? What happens to pensioners who own valuable homes but have modest incomes? The principle is sensible, but the success or failure of any reform will depend entirely on the detail.

A well designed property tax could be more efficient than Stamp Duty, which distorts behaviour by taxing transactions. But replacing two imperfect taxes with one "better" one may not make the politics any easier.

An annual charge on property or land values would create immediate winners and losers, the most exposed being asset rich, income poor households such as pensioners in long held family homes. Those who have recently paid Stamp Duty should also receive an offset, otherwise they risk being taxed twice in quick succession.

A land value tax has a strong economic case because taxing land is generally less distortionary than taxing buildings, but separating the value of the land from the building is complex. The real test is not whether it is elegant in theory, but whether it is fair, practical and genuinely revenue neutral.