A report into reforming wealth taxes has stated that stamp duty and property transfer taxes ‘lack a clear economic rationale’, despite being the most common form of property taxation in the UK.

According to the Institute of Public Policy’s new report ‘Property and Wealth Taxes in the UK’ Governments are reluctant to abolish stamp duty due to the revenue it generates, the ease of collecting it and “it is far less politically unpopular than council tax.”

It suggests instead that the way it is calculated and collected is in need of reform as a future government is unlikely to replace stamp duty with a hike in council taxes.

The report proposes reforming the structure of stamp duty so that “it applies to the value of a property above a threshold, rather than the whole value” in two ways.

Either, apply current tax rates to value of properties above the existing relevant thresholds or apply the duty to the value of the property above the threshold which would mean doubling rates so that revenue loss is minimised.

Under the two proposed reforms the first scenario outlined above would generate much lower income than the current model however, the second would mean that those who own properties up to a value of £400,000 would pay the existing rate while properties above this rate would carry a much higher taxation rate.

The CML has however stated that the Budget is unlikely to implement comprehensive reform despite stating that property transaction taxes can “affect the number of sales, which can in turn affect house prices.”

The Government has attempted to minimise the knock-on effect of property taxes on the wider housing market with tax breaks and so-called ‘stamp duty holiday’, yet the results of these have been limited.

The report thus suggests alternative property taxes, such as capital gains tax and imputed rent for which it maintains there is “a strong economic case.”

This would mean those selling their primary residence would be treated as benefitting from an investment, however, it states that there is “apparent unfairness” in this as property prices in some parts of the UK continue to rise considerably through no intervention by owners.

Imputed rent taxation, which proposes that owner-occupiers “benefit from housing series they would otherwise have to pay for (by renting a property out), would attempt to correct the difference in tax paid by owner-occupied and rental properties.

According to the report, there has been little progress on tax reforms over the past 20 years but it maintains that there is a growing case to redesign the UK’s taxation system with the evolving way the population interacts with the housing market.