Rachel Reeves is expected to target the wealthy with a ‘mansion tax’ on the UK’s most valuable homes at this week’s budget.
According to reports, the most expensive properties in Britain will be hit with a tax worth an average of £4,500, in a move that could raise between £400 million and £450 million through council tax bills.
Using the existing council tax system as a basis for the tax, some 2.4 million of most valuable properties across bands F, G and H will be revalued.
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The policy is unlikely to be implemented until 2028 at the earliest, once the revaluation of the bands has been completed.
Initial plans had seen the tax start at £1.5 million, which would have affected 300,000 households. However, Reeves is set to raise the threshold to £2 million, affecting more than 100,000 properties, following concerns the £1.5m b ar would have impacted people who are “asset rich and cash poor.”
People will be able to defer paying the tax until they move house or die, to avoid situations where they may have to sell their homes to cover the cost.
The Office for Budget Responsibility has warned that the so-called mansion tax could lead to a slowdown at the top of the housing market, citing concerns that fewer properties would be sold as a result of the charge.
However, a government source told the Times that the impact on the housing market is expected to be minimal.
“The OBR has factored in a behavioural response to this with a knock-on effect on the housing market. It has a wider impact,” a Whitehall source said.
The revenue raised through the tax is one of several measures the chancellor is expected to announce at the autumn Budget on Wednesday to plug a £20bn financial black hole in the British economy.
This includes a predicted freeze on income tax thresholds for two years, a tax raid on pension contributions, a gambling tax, a pay-per-mile tax on electric cars and a tourism tax for local authorities, including London, to implement.
At the same time, there’s expected to be an above-inflation boost for pensioners and an end to the two-child benefit cap.