Labour’s mansion tax threatens to get bogged down in “chaotic” wave of appeals by homeowners, ministers have been warned.
Barbara Farris – a 69-year-old who believes her home is around the £2m threshold – told The i Paper that she was ready to fight against the “unfair” levy of £2,500 a year.
Chancellor Rachel Reeves announced the “high-value council tax surcharge” in November, arguing the move would help deal with wealth inequality.
The so-called mansion tax will see properties in England valued at more than £2m hit with an extra £2,500 a year charge – rising to £7,500 a year for homes worth over £5m.
The Office for Budget Responsibility (OBR) has estimated that 20 per cent of the valuations used to determine the mansion tax will be challenged by homeowners in order to bring their property under thresholds.
The OBR’s latest report also predicts that 40 per cent of those appeals are likely to be successful.
However, property experts told The i Paper that the OBR may be underestimating the “wildfire” of appeals ahead from homeowners set to be hit by the levy.
The “slow and contentious” process could overwhelm the tribunals system and delay Labour’s plans to impose the tax in April 2028, they warned.
‘I don’t see why I should be forced to move’
Ms Farris believes her four-bedroom bungalow in Hertfordshire may be close to the £2m starting threshold. She is angry about the prospect of a £2,500 annual bill that she will struggle to afford.
The pensioner, who previously worked in TV advertising and recruitment, has been living on her own in the Hertfordshire property since her husband Stephen died 11 years ago.
She said the couple paid £490,000 for the house in 1998. They were only able to afford the home – which they adapted for disabilities – because of the compensation her husband received after an accident left him paralysed.
Ms Farris has no intention of downsizing, and said she would appeal if her house was valued at £2m or more.
“I don’t agree with the principle – it’s an exceptionally unfair tax,” said Ms Farris. “I don’t see why I should be forced to move. I don’t want to be pushed out of my home, where I have friends and family and feel part of a community.”
Officials expect 33,000 mansion tax appeals
The OBR’s latest report, released earlier in April, estimates that 165,000 households may be liable to pay the mansion tax.
Ministers are still consulting on exactly how an appeals system might work. But the OBR said 33,000 households – 20 per cent of affected homeowners – could appeal. The watchdog said 40 per cent of those, the equivalent of around 13,000 households, could be successful.
London expected to be hit hardest by the mansion tax (Photo: Wiley Wilkins / Provider: Getty Images)The Government’s Valuations Office Agency (VOA) is expected to use an “automated valuation model”, using maps, recent sales figures, number of rooms and local data to price the majority of homes.
However, property experts have warned that these “desktop valuations” tend to see homes over-priced by failing to account for poor conditions.
Ms Farris believes that there is no obvious desktop estimate for her home’s value, since all the houses in her neighbourhood are a different size and design.
“I don’t see how I could trust that valuation,” she added. “How are we going to get a fair, impartial valuation when [VOA] is a government organisation?”
Homes could be left in ‘decrepit’ state to avoid tax
Amid concern about “cash-poor” pensioners, the Government will consult on tax reliefs. They are reportedly considering a deferral mechanism, aimed at allowing the cash-poor to delay paying the tax until their house is sold.
Ms Farris wants clarity on how any deferral mechanism might work. Because she doesn’t have any children, she plans to leave the house to a charity. But she doesn’t want to leave the charity with any mansion tax debts.
Ms Farris, who lives on a modest pension, said an extra £2,500 a year in tax “would make things more difficult” if she is forced to pay. “The cost of living makes things difficult. It would mean cutting back on everything.”
She said some people may want to sub-divide and sell parts of their property – such as a barn or annexe – to reduce its value. “The more common thing will be people not maintaining or doing upgrades. You could see houses left in a decrepit state.”
Appeals could ‘spread like wildfire’
Mark Barrett, tax specialist at Property Tax Advice, believed the OBR’s estimate of 20 per cent of affected owners appealing was a “significant understatement”.
The expert thinks 30 to 40 per cent of households may challenge the Government’s valuations – between 50,000 and 66,000 appeals – given the level of anger about the tax among high-value homeowners. “As soon as some are successful with an appeal, it could spread like wildfire,” he said.
Barrett said a valuation tribunal already takes around nine months. “So we can expect huge increases in workload at that tribunal and delays in getting a final decision,” he added.
Chancellor Rachel Reeves has been warned of high volume of appeals (Photo: Dan Kitwood/Getty)David Fell, lead analyst at Hamptons estate agents, said there is a “steep cliff edge” between the mansion tax’s brackets – so there is a strong “incentive to appeal”.
He expects a “high volume of appeals” and “an extended and contentious valuation and appeals process”.
Fell pointed out that 40 per cent of challenges to council tax bandings were successful last year, and there was “little reason to suggest that a similar proportion of challenges to the mansion tax wouldn’t also succeed”.
The HomeOwners Alliance (HOA) said many people will be willing to pay several hundred pounds to have an independent valuation survey done so they can use it as evidence in their appeal.
The appeals process “risks becoming chaotic, slow, and deeply contentious,” said HAO’s chief executive Paula Higgins.
The mansion tax will raise £400m a year for the Treasury by 2028-2029, according to the latest OBR estimate.
The recent OBR report says it could have in raised £605m a year, but “behavioural responses” – including appeals – will reduce that sum by £205m.
The mansion tax appears popular with the wider public. It was backed by 67 per cent of voters, according to a YouGov poll on November’s Budget measures.
A HM Treasury spokesperson said: “This government is addressing a longstanding unfairness in our country, where a Band D home in Darlington or Blackpool pays nearly £300 more in council tax than a £10m mansion in Mayfair.”
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