Think tank calls for stamp duty axe as Londoners ‘underpay’ £3.1bn in property tax

The government should eventually scrap stamp duty as part of a major overhaul of England’s property taxes, according to a new report.

The Resolution Foundation claims the tax prevents around 100,000 home purchases each year.

It wants ministers to replace council tax and stamp duty with a proportional tax based on current property values.

The think tank argues that the existing system discourages people from moving home. It also places a disproportionate burden on lower-value properties.

Its Home Economics report estimates that London households effectively underpaid £3.1bn in property taxes in 2024-25. The calculation reflects the value of their homes.

By contrast, households elsewhere in England are more likely to pay disproportionately high amounts.

The report says 80% of London households currently benefit from the structure of property taxation. Meanwhile, the North East faces a very different picture.

By 2030-31, the Foundation expects 85% of households there to overpay relative to property values. It puts the average annual overpayment at around £710.

Stamp Duty blamed for lost transactions

For agents, one of the most significant recommendations concerns stamp duty.

The Resolution Foundation estimates that the transaction tax prevents around 100,000 property purchases each year.

It argues that stamp duty discourages people from moving. That includes homeowners looking to downsize and those relocating for work.

However, the think tank does not recommend immediately abolishing the tax.

Instead, it wants ministers to reform stamp duty and council tax together. Its proposed replacement would introduce an annual tax linked to current property values.

The Foundation proposes a rate equivalent to 0.7% of a property’s current value.

The new system would remain revenue-neutral overall. It would also offer rebates to lower-income households.

Meanwhile, some asset-rich but cash-poor homeowners could defer payments until they sell their property.

The Foundation says ministers should leave stamp duty unchanged for the remainder of this parliament. During that period, they could prepare the wider reforms.

Homeowners could then offset stamp duty paid during the transition against future property tax bills.

Council Tax still relies on 1991 values

The report also targets council tax. England still calculates bills using property valuations dating from 1991.

Since then, house price growth has varied sharply across the country.

The Foundation says property prices have increased 7.3-fold in Inner London since 1995. In the North East, they have risen 4.2-fold.

By 2030-31, it estimates a £100,000 home will face a much higher effective tax rate than a £1m property.

Hannah Aldridge, senior research and policy analyst at the Resolution Foundation, said: “Our housing taxes fall heaviest on those least able to afford them and have turned into a huge £3.1 billion subsidy for those living in London paid for by households across the rest of England.”

London faces further property tax increases

The report comes as parts of London face potentially steep council tax increases following changes to local government funding.

Wandsworth Council says the reforms will eventually cut its funding by £84m a year.

As a result, the council has warned that it may need to increase council tax sharply unless the settlement changes.

Meanwhile, owners of high-value homes face the new High Value Council Tax Surcharge, also known as the “mansion tax”.

Under the current policy, the government will impose an additional annual charge on homes worth more than £2m from April 2028.

Charges will start at £2,500 for properties valued between £2m and £2.5m. Owners of homes worth more than £5m will pay £7,500.

However, several London councils are campaigning against the measure.

The Resolution Foundation wants the government to go considerably further. It is calling for a wider overhaul of residential property taxation.

Its report recommends creating a database of up-to-date property valuations. It also proposes a commission on residential property taxation.

Ultimately, the Foundation argues that reforming both taxes would reduce the financial penalty for moving home. It says annual taxation would also better reflect current property values.