A plan to lower the threshold at which high value homes are hit with an extra council tax charge would end up meaning tens of thousands of flat owners owe the levy, analysis shows.
In last year’s Budget, then-chancellor Rachel Reeves announced that there’d be an extra tax worth between £2,500 and £7,500 a year on properties worth more than £2m.
Officially called the High Value Council Tax Surcharge (HVCTS), but dubbed as a “mansion tax”, it was expected to hit about 134,000 homes.
The government is now considering extending the charge to properties worth more than £1.5m, doubling the number of homes affected to 271,000.
Analysis by estate agency Savills done for The i Paper shows how in some areas of the country, a drop to the threshold could end up increasing the number of homes the tax would apply to by over 250 per cent.
Unsurprisingly, most of the areas impacted are in London.
The analysis suggests that less than half the homes affected by the charge would be detached homes, with flats and terraced houses making up over a third of the properties impacted.
Looking at sales data from the last five years, Savills found just over 43,000 homes had been sold for over £1.5m and that 6,149 (14 per cent) were flats, 10,378 (24 per cent) were terraced homes and 5,437 (12.5 per cent) were semi-detached properties.
Extrapolating these figures across all the 271,000 homes in England worth over £1.5m suggests between 30,000 and 40,000 of the properties affected by the charge will be flats.
Between 60,000 and 70,000 would be terraced houses.
Experts said the analysis raised questions about whether the mansion tax “does what it says on the tin”.
“A lot more central London flats and terraced family homes elsewhere in the capital would end up paying the surcharge if the threshold were lowered,” said Lucian Cook, head of residential research at Savills.
“From a cost-benefit perspective, a much more extensive valuation programme would be needed, in order to widen the number of homes paying the lowest level of surcharge. That would raise further questions about whether it does what it says on the tin,” he added.
Charlie Lamdin, founder of BestAgent and presenter of the Moving Home with Charlie YouTube channel, said the tax would land “overwhelmingly as a London and south east tax”.
“The problem is the cliff edge. A sharp threshold creates distortions: sellers cluster just below it, buyers hesitate just above it, and chains that already move slowly get another reason to stall,” he added.
Neal Groves, head of personal tax at accounting and tax firm Beavis Morgan, added: “If the Government lowers the proposed threshold from £2m to £1.5m, the implications could extend well beyond the very wealthy.
“It could bring many more longstanding homeowners into scope, particularly in London and the South East, where property values have risen significantly over time.”
Some Labour MPs want Burnham to commit to more radical and wide ranging property tax reforms than merely a mansion tax.
A group of Labour MPs mainly based in the North of England want Burnham and Healey to scrap stamp duty and council tax and replace them with an annual proportional property tax based on the value of a home.
Jonathan Hinder, MP for Pendle and Clitheroe, who is among those campaigning for such a change, posted on X on Monday: “I don’t want to see a ‘mansion tax’ bolted on to a broken system. Let’s do proper tax reform, scrapping two stupid taxes and replacing them with a proportional property tax.”
A Treasury spokesperson said: “As has always been the case, decisions on tax are a matter for the Chancellor to set out at fiscal events, rather than routinely commenting on rumour, speculation or proposals.”
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