Rachel Reeves will hit more than 100,000 of Britain’s most expensive properties with a surcharge worth an average of £4,500 as she seeks to balance the books by increasing taxes on the wealthy.
The chancellor has pared back plans for the property tax, increasing the threshold at which it applies from £1.5 million to £2 million to ensure that the most expensive properties are affected.
Reeves plans to raise £400-£450 million from the levy, which will be collected through council tax bills. The owners of more expensive homes will pay significantly more.
The Treasury is expected to use the existing council tax system as the basis for the charge by revaluing 2.4 million of the most valuable properties across bands F, G and H.
More than 100,000 of the most valuable properties would be subject to the charge, which is expected to use an escalator with different bands depending on the value of the property.
Reeves was initially planning a broader version of the tax, which would have started at £1.5 million and hit 300,000 households. However, there were concerns that the move would affect people who are “asset rich and cash poor”, particularly in London, and the threshold has been raised.
• How Rachel Reeves’s grand vision became a battle for survival
The government will allow people to defer paying the tax until they move house or die to avoid people having to sell up to cover the cost.
The Times has been told that the Office for Budget Responsibility, the budget watchdog, has suggested that the plans could lead to a slowdown at the top of the housing market.
It highlighted the behavioural impact of the policy, as there are concerns that fewer properties will be sold. A government source said that the impact on the housing market was expected to be minimal.
There are concerns that there will be “bunching” as people try to keep property prices below the thresholds for higher rates.
A Whitehall source said: “The OBR has factored in a behavioural response to this with a knock-on effect on the housing market. It has a wider impact.”
The policy is unlikely to be implemented until 2028 at the earliest, until the revaluation of the top three bands has been concluded.
Kirstie Allsopp, the presenter of Location, Location, Location, told Times Radio: “It’s completely performative because Rachel Reeves cannot get to grips with her back benches. She wasn’t able to get to grips with welfare spending at all.
“She needs to hand a nice chunk of meat to her back benches and say, ‘look, I am bashing the wealthy. I am taking more money off them.’ And this is a perfect way of doing it. And the thing about it, it sort of wouldn’t matter if it wasn’t so incredibly damaging to the top end of the housing market, which is a huge economic driver.”
Lucian Cook, head of UK residential research at Savills, said: “You don’t want to undermine the housing market at a time you’re trying to build 1.5 million homes. There is a risk there will be a trickle down from the top of the market.
“If they went too punitive there is also a risk of more capital flight. This is a compromise measure which looks much more about righting the perceived wrongs of the existing council tax system rather than looking to raise significant revenue.”
Tom Bill, head of UK residential research at Knight Frank, said: “Initially while the revaluation process takes place there will be uncertainty around particular price points for buyers and sellers. It will throw a spanner in the works of those sorts of negotiations.
“Once the revaluation has happened then you have the issue that it can be challenged, again particularly around thresholds. We could be looking at a fairly prolonged and messy process that doesn’t yield what the government thinks it will in the short term.
“It will probably have an impact on transactions and activity. Once you have certainty then inevitably prices will adjust and take into account any extra new levy.”
ANDREA PISTOLESI/GETTY IMAGES
It will be part of a “smorgasbord” of tax rises in the budget after Reeves dropped plans to break Labour’s manifesto and increase the basic rate of income tax.
The chancellor told Labour MPs that she will protect low earners from the worst of the tax rises while supporting those on welfare. She will scrap the two-child cap on benefit payments, a move that will cost about £3 billion a year, and increase benefits in line with inflation. It comes after she was forced to abandon plans to overhaul welfare after a revolt by Labour MPs.
Reeves is expected to freeze income tax thresholds for two years until 2030, a so-called stealth tax which drags people into higher income tax brackets as their earnings rise, but the thresholds remain frozen. The move, which will raise £8-£10 billion, means more than 10 million people will be higher-rate taxpayers by the end of the decade.
• Budget 2025 predictions: what could Rachel Reeves announce?
She will announce a tax raid on pension contributions, which could be worth as much as £4 billion, a gambling tax, a pay-per-mile tax on electric cars and a tourism tax.
Paul Johnson, the former head of the Institute for Fiscal Studies think tank, said: “Assuming the two-child limit goes, and following U-turns on winter fuel and disability benefits, we are looking at something in the order of £10 billion a year of additional spending in the forecast period relative to what we were expecting at the spring statement. At best there is no effort to get welfare spending down and the net effect is an increase because of the decision to scrap the two-child limit.”