Mansion tax on properties over £2m, as much as £7,500 a yr, will COST Treasury earlier than it is available in with much less taken from stamp responsibility & CGT and can drag in additional properties over years
Labour’s mansion tax attack will hit ‘normal’ properties in London and the South East – and initially cost the government money, experts have warned.
Rachel Reeves confirmed that homeowners will be stung with bills of at least £2,500 if their house is worth more than £2million.
But the budget watchdog estimated that the Treasury will miss out on £300million due to falling stamp duty and capital gains tax revenue over the next three years.
And property experts warned that the tax grab would ‘subdue’ high-end property sales, while also punishing those living in ‘perfectly normal London houses’ – rather than the ultra-rich.
Announcing the plans in her Budget, the Chancellor said she wanted to deal with ‘a longstanding source of wealth inequality in our country’.
‘A Band D home in Darlington or Blackpool pays just under £2,400 in Council Tax – nearly £300 more than a £10m mansion in Mayfair,’ Ms Reeves told MPs.
‘And so from 2028, I am introducing the High Value Council Tax Surcharge in England. An annual £2,500 charge for properties worth more than £2million, rising to £7,500 for properties worth more than £5million.
‘This will be collected alongside Council Tax, levied on owners and we will consult on options for support or deferral.
‘This new surcharge will raise over £400million by 2031 and will be charged on less than the top 1per cent of properties.’
Properties in London and the South East are expected to be especially hit
It will take effect in April 2028, and ministers will carry out a public consultation on the plans early next year.
The Government said the Valuation Office will conduct the ‘targeted valuation exercise’ to identify properties that are in scope, and revaluations will be conducted every five years.
Although only around 100,000 properties are thought to be immediately in the firing line, it is not clear when the threshold may be raised – meaning many more homeowners could be dragged into paying the mansion tax over time.
The tax will raise an estimated £400million annually from 2029/30, with the revenues going to central government rather than councils.
But the Office for Budget Responsibility (OBR) warned: ‘We assume over time there will be full pass-through of the cost of the surcharge into the prices of the liable properties, as well as price bunching to just below each band boundary.
‘This slightly reduces the estimated yield by reducing the number of properties in scope of the measure and moving properties into lower charging bands. It also results in lower yield from other property taxes (including stamp duty land tax and capital gains tax) which accounts for the negative yield from the measure in the near term.’
The Institute for Fiscal Studies (IFS) said the mansion tax leaves ‘much to be desired’.
‘When it comes to property, we now have a council tax system based on 1991 values, with a new complicated bolt-on for high-value houses based on what the house is worth today,’ the think tank’s economists said.
‘There’s a reasonable case for levying more high-value homes, but the design of this tax leaves much to be desired.’
Becky Fatemi, executive partner at Sotheby’s International Realty UK, added: ‘A tax sold as a hit on ‘mansions’ will actually be felt most by people living in perfectly normal London houses that happen to be worth £2 million. They are the ones who will feel an extra £2,500, not the ultra-rich.’
And Zena Hanks, partner at chartered accountants Saffery, said: ‘The new high value council tax surcharge will hit many homeowners, particularly in London and the South East, where £2 million-plus properties are increasingly prevalent and may be owned by families whose incomes lag far behind the value of their homes. a year, rising with inflation, adding yet more pressure at a time when living costs are already challenging. There must also be a greater concern that the threshold will be reduced over time, bringing more and more households within the scope of this ‘wealth tax’.’
Simon Gammon, managing partner at Knight Frank Finance, meanwhile warned that ‘high-value markets in particular will be subdued until homeowners get to grips with the new ‘mansion tax’.’
Some Labour Cabinet ministers look set to be among those clobbered with the tax. Energy Secretary Ed Miliband and Attorney General Lord Hermer each own homes with an estimated value of close to £4million, analysis suggests.
