Rachel Reeves eyes up radical stamp duty reform that would ease crippling cost for millions

The initiative could enable Rachel Reeves to enhance economic activity via increased housing market movement without forgoing the substantial stamp duty income that contributes more than £10billion yearly to public finances.

Such reforms may help address the significant barrier that upfront stamp duty payments create for prospective homeowners.

Various alternatives are being evaluated by the Treasury, ranging from distributing payments throughout property ownership to establishing yearly levies on residences valued above £500,000.

Some proposals suggest implementing higher rates for properties exceeding £1million, with payments potentially accumulating until the property changes hands.

Additional considerations include restricting capital gains tax exemptions on primary residences worth more than £1.5million, or capping relief based on profit thresholds similar to American regulations.

The Institute said: “Stamp duty is long overdue reform. As we have previously set out, households should be allowed to spread stamp duty payments over 20 years through a government backed loan.

"Crucially, any household that moved within 20 years would not need to pay off the remainder of their loan.

"This would remove the upfront tax penalty on mobility, encourage labour-market flexibility and support growth by making it easier for people to move for work."

The possibility of eliminating stamp duty entirely has emerged, with replacement annual charges being contemplated for more expensive properties.

Officials are also examining whether stamp duty could be deferred until sale rather than demanded at purchase, though this would temporarily reduce Government receipts while existing homeowners await transitional provisions.

Paul Davidoff, a tax specialist at Kingsley Napley, has expressed reservations about several proposed alternatives, particularly regarding their impact on existing homeowners.

"For those with mortgages and who have borrowed as much as they can afford, the addition of a further monthly or annual outgoing might make their mortgage unaffordable," Mr Davidoff said regarding annual property tax proposals.

He highlighted similar difficulties for pensioners with restricted incomes who might struggle with additional regular payments despite owning their homes outright.

The tax expert questioned the logic of deferring stamp duty until sale, noting this would primarily benefit first-time purchasers whose liabilities tend to be modest regardless.

Mr Davidoff also raised practical concerns about calculating new levies, wondering whether they would be based on current valuations or original purchase prices, and how gifts or inheritances would be treated.

Richard Donnell from Zoopla endorsed the instalment approach, saying: "Staggering the payment of Stamp Duty is a great proposal as it would help unlock more home moves, especially in areas with the highest home values and the biggest costs for home buyers."

He emphasised that stamp duty represents a substantial expense deterring potential purchasers, affecting four-fifths of homeowners and two-fifths of those buying their first property.

Market uncertainty surrounding potential tax changes has already disrupted transactions, with Martyn Gerrard Estate Agents reporting that speculation has caused one-fifth of their agreed sales to collapse.

Andrews Property Group has responded by initiating a parliamentary petition advocating for flexible payment arrangements, proposing buyers could distribute costs across two to five years.

"The real answer, long term, is to remove Stamp Duty altogether, but as a tax that generates over £10billion a year it's a tough one to reform."