Rachel Reeves has privately told MPs that she will include a “mansion tax” in her Budget next week, The i Paper understands.
The Chancellor hosted drinks for a select group of Labour loyalists at No 11 Downing Street on Monday night, where she said she was working up plans to target the highest value homes in the country.
It comes just days after Reeves U-turned on her plans to raise income tax, choosing instead to introduce a “smorgasbord” of smaller tax rises to help balance the country’s finances on 26 November.
Over what was described as “warm white wine, cheese twists and flapjacks”, Reeves urged the MP to sell the message that tax rises will fall hardest on wealthier people, rather than those on modest incomes.
And while those present at the drinks reception said she did not use the specific term “mansion tax”, it was made clear that she was referring to higher taxes on the most expensive houses.
‘She wants us to talk loudly about charts’
The Chancellor also revealed that she had hoped to use her decision to abandon a rise in income tax as a rabbit out of the hat come Budget day, but the plans were leaked to the Financial Times.
According to those in the room, the Chancellor said: “She said she wanted us to talk loudly about charts that will show the distribution of where the new tax rises will fall, with them landing largely on the wealthiest households.”
She also made clear that she aimed to use her Budget next week to bring down the country’s enormous debt pile.
Critics of Reeves will argue, however, that if she freezes tax thresholds, as she is widely expected to do, it many people on modest incomes will be dragged into paying higher tax.
It is also at odds with her highly publicised speech earlier this month, when she said “all would have to contribute” to fixing Brtiain’s finances.
Her decision to push ahead with a mansion tax comes after The i Paper revealed that officials are working on plans to allow owners of expensive homes but who are but on modest incomes to defer the payment of any new tax until the house is sold, or after they die.
The Treasury is understood to be concerned about any new property tax hitting the so-called “asset rich, cash poor” and so is working up possible means of deferring the annual tax until the sale of their house.
It is unclear how this would impact those who inherit the property, however. It is likely the oweable tax would be taken from the estate before it is valued for inheritance tax, potentially lowering the resulting bill.
But, it could also impact the total inheritable amount. Similarly, if a home is sold to pay for care home fees, it could impact the amount available for care.
Annual surcharge preferred method of taxation
Officials are believed to be considering several ways of targeting the owners of more expensive houses, with an annual surcharge expected to be the preferred option.
Under such a mechanism, houses over a certain value, such as £1.5m or £2m, will be taxed an additional 1 per cent per year above that level, meaning a home worth £2m would have to pay an extra £5,000 a year on top of its existing council tax if the threshold were £1.5m.
There is, however, no detail on how homes would be valued or how often they would be valued.
The plans were first put forward in 2014 by the then-Labour leader Ed Miliband and his shadow chancellor Ed Balls, before the Labour’s defeat in the 2015 general election.
A second idea mooted is for the Treasury to increase the amount of tax paid in the highest council tax bands.
A recent report by influential think-tank the Institute for Fiscal Studies suggested the Chancellor could double council tax in bands G and H, in a move that could raise £4.2bn for councils by the end of the decade.
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But, an analysis by political and economic strategists Public First warned the proposal risked being dubbed a “granny tax” as 41 per cent of homes in the highest council tax bands are “pensioner owned”, compared with less than 30 per cent across the whole population in England.
Scott Corfe, director at Public First, said: “The Government might see this as an easy way out given only 4 per cent of properties are affected. However, as we have seen time and time again, the politics of tax increases for the elderly asset rich but cash poor are challenging. This could become the next ‘granny tax’.”
The Treasury has been contacted for comment.
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