Property taxes are in “determined want of reform,” says the Institute for Fiscal Studies, pointing to council taxes and stamp responsibility as key areas the place “half-baked fixes” should be prevented forward of the Chancellor’s Budget.
26/03/2025. London, United Kingdom. Chancellor Rachel Reeves leaves No 11 Downing Street to ship her Spring Statement. Picture by Alecsandra Dragoi / Treasury
The influential thinktank urges Rachel Reeves to work in direction of scrapping stamp responsibility on housing and the council tax and exchange them “with a brand new recurrent property tax that was proportional to up-to-date property values”.
It says stamp responsibility, which has risen over the course of this century, is forecast to carry in £24.5bn by 2029–30.
“That is regrettable, says the physique. “Taxing asset transactions impedes mutually helpful exchanges.
“Instead of permitting property to be bought to those that worth them most, stamp responsibility successfully throws sand in the gears, main to an inefficient allocation of property.”
It provides that this levy “on rental housing and on business property is equally damaging”.
The physique argues that stamp responsibility “needs to be abolished as a part of a wholesale reform of property taxation”.
It says: “Council tax needs to be became a tax proportional to up-to-date property values, set at a price that might exchange the income from stamp responsibility on housing in addition to current council tax income.”
The physique provides that council tax bands in England should be upgraded from property values that had been set in 1991.
The thinktank says: “There is a case for elevating a bigger share of tax income from taxes on land and property – since land is in fastened provide and can’t transfer, and taxing it subsequently causes much less financial distortion — and is extra growth-friendly — than different taxes, similar to taxes on earnings.
“But the precedence needs to be to cut back the injury and unfairness attributable to our current property taxes.
“More wise property taxes could possibly be elevated, if desired, with fewer reservations.”
The physique says that Reeves, in her 26 November Budget, has set herself a troublesome activity of filling a fiscal black gap of between £20bn and £30bn.
This is as a result of Labour has dominated out lifting staff’ nationwide insurance coverage, earnings tax, or VAT, which account for round 75% of the Treasury’s income.
But the thinktank says she will be able to increase money from different measures, similar to capping pension earnings tax aid at 20%, elevating £22bn by 2030, or freezing all earnings tax and nationwide insurance coverage contributions thresholds till April 2030, which might increase £10.4bn.
The physique provides that Reeves has the prospect to make a spread of fairer reforms that won’t damage progress subsequent month.
Institute for Fiscal Studies director Helen Miller says: “There is a chance to be daring and take steps in direction of a system that does much less to impede progress and works higher for us all.
“Muddling by means of by merely elevating charges of present taxes would possibly seem the better choice – Rachel Reeves’s predecessors in the Treasury have all too usually shied away from taking daring steps to enhance the tax system.
“But counting on badly designed taxes to carry in extra income will carry pointless financial injury.”
Last week, Conservative chief Kemi Badenoch pledged to abolish stamp responsibility on main houses if her celebration returns to energy on the subsequent election.
She mentioned the measure could be paid for largely by means of £23bn of cuts to the welfare invoice over 5 years, on the celebration’s convention in Manchester.
