Experts raise alarm over fresh mansion tax raid ahead of Healey’s Budget

Fears of a fresh mansion tax raid on wealthy UK homeowners mounted this weekend as property experts warned existing levies were ‘introductory’ and could be expanded.

It comes after Chancellor John Healey, admitted last week that the Government was ‘evolving’ its stance on council tax and would introduce ‘a top band for those who have extremely valuable properties’, potentially in the next Budget on October 28.

Healey refused to be drawn on the exact nature of the plans. But property insiders said, given the complexity and expense of a wholesale council tax revaluation, the Chancellor may be considering lowering the mansion tax threshold from £2million to £1.5million and increasing surcharge rates, which currently range from £2,500 to £7,400 a year on top of a household’s existing council tax bill.

Tom Bill, head of residential research at estate agency Knight Frank, said there was ‘a sense of unfinished business on the issue’ and that other levies on property were probably being mulled over by the Treasury.

‘This could suggest they may be leaving the door open to bringing more homes into the mansion tax net. The rates announced in the last Budget could prove to be introductory rates only,’ he added.

When it was introduced in last year’s Budget, it was estimated the mansion tax would bring in £430 million a year, with 55 per cent of this calculated to come from four London boroughs: Kensington and Chelsea, Richmond, Wandsworth and Westminster.

This amount has already been described by critics as the equivalent of a ’rounding error’ in terms of overall Government revenues, and that factoring in the cost of objections and other legal action the true amount collected would be minimal.

The Mail on Sunday revealed in July, before Burnham became Prime Minister, that an expansion of the tax was already under discussion, with ministers seeking to extend its scope to thousands more terraced and semi-detached homes in London and the South East.

The suspicion that the Government is again plotting such action has been heightened by reports that officials from HMRC’s Valuation Office Agency (VOA) could seek to gain entry to houses to ascertain their worth – a disclosure that caused a storm of protest.

The VOA is currently revaluing properties in council tax bands F, G and H to establish which should be subject to the mansion tax, which takes effect from April 2028. 

Healey may hope to squeeze more money out of homeowners by extending the mansion tax to another 70,000 to 100,000 properties, but Charles Curran of estate agency Maskells says that such a measure could backfire.

‘The Chancellor would have to be mindful that this additional cost for homebuyers would decrease the size of the mortgages they were able to take out,’ he said.

‘This would, in turn, put downward pressure on house prices, so cutting the number of properties that would be covered by the mansion tax and the tax take.’

Healey’s comments have also sparked wider concern that the Government is once more bent on tax reforms that will appease Left-wing Labour MPs, but may prove counterproductive, hitting the property market and depressing tax revenues.

The abolition of the ‘non-dom’ tax regime last year cost the Exchequer up to £4billion, said James Quarmby, head of private wealth at the legal firm Stephenson Harwood.

The Government previously estimated that tightening up the regime for wealthy people not domiciled in the UK for tax purposes would bring in as much as £3 billion in extra tax.

But speaking to Knight Frank’s Housing Unpacked podcast last week, Quarmby said the move had cost the Treasury money, as many ‘mobile’ high-net worth individuals targeted by the clampdown had instead packed their bags and moved to places with more favourable tax regimes, such as Italy.

This in turn had deprived the Exchequer of income tax receipts as well as stamp duty revenue as demand for high-end real estate fell after the exodus.