Mansion tax will reduce £50,000 off high-end properties as Labour accused of waging ‘assault on aspiration’

Labour‘s mansion tax will knock at least £50,000 off the value of high-end home, the Treasury admitted on Thursday night.

Property experts have warned that the so-called ‘high council tax surcharge’ will distort property values and have knock-on effects throughout the market.

The Treasury on Thursday night said it is expecting the average price of homes affected to take a 2.5 per cent hit – equal to £50,000 on a £2 million house.

But Treasury minister Dan Tomlinson acknowledged the impact is likely to be ‘greater’ at prices close to the thresholds where the new surcharge will apply.

The fall in prices is likely to reduce stamp duty revenues to the Treasury by tens of millions of pounds in the coming years.

Shadow housing secretary Sir James Cleverly, who uncovered the Treasury figures through parliamentary questions, said: ‘Labour’s new family homes tax is an attack on aspiration. It punishes people who have worked hard, saved hard and invested well to fund a welfare splurge for people who don’t work at all.

‘We have forced Labour to admit this tax will also hit property prices, leaving homeowners tens of thousands of pounds down in lost equity, compounding the tax surcharge.’

The new levy was imposed by Rachel Reeves at last month’s Budget as a sop to Labour MPs demanding a wealth tax.

Upmarket London red brick mansion buildings in Knightsbridge area of Kensington and Chelsea (file photo)

Stone Wall and Gated Entrance of a Beautiful Georgian Era English Mansion (file photo)

The charge, which will be introduced in 2028, will leave the owners of homes worth £2 million or more facing a £2,500 annual bill on top of their regular council tax.

Homes valued at £2.5 million to £3.5 million will pay £3,500 per year, those worth £3.5 million to £5 million will pay £5,000 a year, while properties worth more than that will be charged £7,500.

The move is likely to devalue Sir Keir Starmer’s family home in north London, which is worth a reported £2 million. 

However, he is expected to receive an exemption from the new charge for the flat in Downing Street where he now lives.

Mr Tomlinson suggested the Treasury expects the charge to distort the housing market around each of the thresholds.

He told MPs: ‘The policy costing for the surcharge assumes an average price impact on affected properties of 2.5 per cent with greater effects around the band thresholds.’

The Treasury believes the new tax will eventually raise around £400 million a year.

But in the short term, it is expected to actually cost the exchequer money because of falling stamp duty receipts and other factors. 

Treasury documents estimate the charge will actually lose the government £315 million ahead of its introduction in 2028.

A fifth of all stamp duty revenue came from properties worth over £2million, equivalent to £2.3 billion.

The Office for Budget Responsibility has predicted that the surcharge will lead to ‘price bunching’ as homeowners seek to keep values lower and avoid the levy. This is where the prices or valuations of a high volume of properties cluster just below a specific monetary threshold.

A Treasury spokesman said: ‘We are reforming property taxes so a £10 million Westminster mansion doesn’t pay less than a typical family home in England. Fewer than one per cent of properties are affected – this targets only the very highest-value homes, not ordinary families.’