A radical proposal to scrap council tax in favour of a new levy based on the value of people’s homes has been put forward by a think tank.

Under the plan, all homeowners would pay an annual property tax proportionate to the present-day market price of their home, the Institute for Public Policy Research (IPPR) said.

If the new property tax were set at 0.5%, it would mean an annual tax bill of £1,243 for the owner of a house valued at £248,611, IPPR claimed.

It said the change would help to tackle growing inequality in wealth within the UK.

At the moment all homes are given a council tax valuation band based on the value of the property on 1 April 1991.

Carys Roberts, senior economist at IPPR and a co-author of the report said: “Council tax is a regressive tax as it falls disproportionately on those with lower incomes and wealth.
“A new property tax would be far more progressive, and would effectively capture increases in house prices in a way that the current system does not.

“A tax of 0.5% could raise up to £1.6bn more than the council tax at a UK level. Yet the vast majority of households would benefit from the tax change and estimates suggest that for those in the bottom half of income distribution, disposable incomes would rise.”

The think tank proposed that the new property tax would be levied on landlords, not tenants, and a homeowner with a high-value property but low income could defer payment until their property is either sold, or left on death as part of their estate.

Since 1997, average house prices have increased four times faster than average full-time earnings. The think tank argued that a property tax would capture some of these financial gains, while also dampening future house price inflation.