Fears of new property taxes leave buyers paralysed and sellers desperate across the UK market

Britain’s housing market has been thrown into fresh turmoil as speculation mounts over sweeping property tax changes in Rachel Reeves’ upcoming autumn budget.

The chancellor of the exchequer is reportedly weighing two explosive measures: a levy on the sale of homes above £500,000 and the removal of the capital gains tax exemption on primary residences valued over £1.5 million. Even before any policy is confirmed, the rumours alone have unsettled an already fragile property market.

Estate agents say the impact is immediate. Buyers are stalling, sellers are second-guessing valuations, and confidence—always the lifeblood of the housing sector—is evaporating.

Property website Zoopla warned that a third of all homes for sale in the UK are priced above £500,000, leaving vast swathes of the market in the firing line. Analysts at the firm said the possibility of Reeves’ tax grab has left potential buyers cautious. Many are considering a “wait-and-see” strategy until the budget is unveiled, fearful of committing only to face a sudden new tax burden.

The company’s latest snapshot painted a mixed picture. Sales agreed in July were up 5% year on year, and average house prices rose 1.3%. But beneath those headline figures lurked warning signs. One in ten homes listed had been reduced in price—far higher than the five-year average of 6%. Zoopla noted that price-cut homes lingered on the market for more than twice as long as those priced accurately from the outset.

Richard Donnell, Zoopla’s executive director, urged sellers to stay realistic or risk financial pain.

“Sellers need to understand local market conditions when considering how to market their home, setting the right price and how quickly they would like to sell. The risk of being too ambitious on price is your home taking more than twice as long to find a buyer, or not selling at all.”

Other industry figures echoed his concern. Jeremy Leaf, estate agent and former chair of the Royal Institution of Chartered Surveyors, said the housing market had already lost momentum during the summer lull. The fresh tax rumours, he argued, have made matters worse.

“Unfortunately, perhaps the government do not appreciate that even rumours of a new property tax can have a detrimental impact on housing market confidence and activity, which we certainly witnessed on the ground since the story broke last week.”

Agents report that transactions are still completing, but with an air of nervous hesitation. Buyers are asking not whether they can afford the homes they view today, but whether they can afford the taxes Reeves may unveil tomorrow.

Tom Bill, head of UK residential research at Knight Frank, warned that uncertainty could choke the market in the weeks leading up to the budget.

“A price-sensitive housing market has become a whole lot more price-sensitive over the last fortnight thanks to the speculation around property taxes. In the run-up to the budget there could be weeks of more speculation in a tiresome re-run of 2024 that will keep a lid on transaction activity and stamp duty revenue.”

For sellers, the uncertainty has left them juggling a brutal dilemma: drop prices now to tempt jittery buyers, or hold out and risk being caught in a flood of new taxes that could permanently lower demand.

Meanwhile, London and the south-east—where property values are most frequently above the £500,000 threshold—stand to be hit hardest by Reeves’ proposals. The Treasury’s need for revenue may be strong, but estate agents warn the gamble could backfire. A sudden collapse in confidence risks throttling not just property sales but also stamp duty receipts, undermining the very income the government seeks to raise.

As the speculation drags on, one fact is clear: Britain’s housing market has entered a state of paralysis. Whether Reeves swings the axe or not, the fear of a tax raid has already cast a chilling shadow