At a glance
• The Chancellor is reportedly planning an annual council tax surcharge on homes valued above £2m
• Almost 600,000 homes in London are in the top three council tax bands – and that’s based on sale values that are more than 40 years out of date
• Experts say London and the south-east are the areas most at risk of a mansion tax
The London homes most at risk from a rumoured “mansion tax” can be revealed.
According to reports, Chancellor Rachel Reeves will use her Budget on Wednesday to introduce a surcharge on more than 100,000 of the most expensive homes in the UK.
She is believed to have watered down her initial plan to impose the levy – estimated at an average of £4,500 – on homes worth £1.5m more.
Instead, she is expected to only target those valued in excess of £2m. The extra amount would be added to council tax bills – which suggests it could become an annual surcharge.
Working out which homes would pay the levy would reportedly be done by revaluing all the homes in the country that are currently in the three highest council tax bands – F, G and H.
But research by The Standard has established that almost 600,000 homes are already in the three highest council tax bands – placing many residents at risk of becoming liable for the new tax.
Exact details remain unclear but it is thought the new tax could be imposed from 2028.
Revaluing even just the homes in the three top council tax bands would be a mammoth task. Imposing a surcharge on those already classed as band F, G and H properties would be much simpler. However these bands date from 1992 and fail to take account of the huge changes in the London property market over the last four decades.
For example, only 29 homes in Waltham Forest and 50 in Hackney are currently in the highest band – which makes a mockery of the soaring prices in both boroughs, particularly in desirable areas such as London Fields and Walthamstow.
The seven London boroughs with the greatest amount of Band H homes are: Westminster (16,772), Kensington & Chelsea (15,176), Camden (4,730), Barnet (4,339), Richmond (3,606), Hammersmith and Fulham (2,914) and Wandsworth (3,007).
But Bromley has more than 30,000 homes in Bands F and G, placing many of its residents at risk of a mansion tax, while there are around 20,000 in Croydon and 15,000 in Enfield also in these categories.
This is what we know so far about the proposed mansion tax.
When is the mansion tax due to start?
According to reports, it may not be introduced until 2028. There is the suggestion that residents can defer paying it until they move home – or until they die.
What do the experts think?
TV presenter Kirstie Allsopp, of Location, Location, Location fame, said there was a need to reform the council tax system.
But she told Times Radio: "We all know that council tax is unfair. It doesn't work. It needs to be redone. I have no objection to re-examining council tax. But I think the problem about this proposal is it's going to cost a lot of money to revalue those properties."
Jack Fletcher-Price, equity analyst at Morningstar, said a mansion tax would disproportionally hit London and the south-east.
“The changes to council tax bands is probably overdue, but it will further undermine trust in this Government given they promised not to do this in the run up to the election,” he said.
When was council tax introduced?
Council tax was introduced into England, Scotland and Wales in April 1993, replacing the community charge or “poll tax”.
How many properties are liable for council tax?
25.1 million dwellings are liable for council tax in England. Of these, 15.9m are liable for the full rate while 8.8m qualify for a discount – of which 8.5m receive the single person’s discount.
There were 268,000 dwellings recorded as second homes for the purposes of council tax. Most councils charge double rate council tax for second homes.
How is the council tax worked out?
Councils set a “benchmark” band D rate. Each of the other seven bands is then a fraction or multiple of this amount - from 6/9 for Band A to 18/9 for Band H.
How do homes end up in a particular band?
Banding in England and Scotland is based on sale values as of April 1991. Wales is slightly less out date and uses sale values on 1 April 2003. The Welsh government plans a further revaluation, to take effect from 1 April 2028.
Valuations are carried out by the Valuation Office Agency in England. Councils do not participate in this process and cannot compel the revaluation of single or multiple properties.
What is the Valuation Office Agency and what does it do?
The Valuation Office Agency places all domestic properties in England in one of eight valuation bands (A-H).
The relevant council then sets the council tax rate for each of the valuation bands in their area, and collects the revenue.
If a resident wants to challenge their council tax banding they can appeal to the Valuation Office Agency. In most cases, an appeal must be made within six months of moving in to the property.
Does the Valuation Office Agency have the capacity to revalue all the homes in the UK that are in the top three council tax bands?
This is the practical issue that could cause problems for whatever changes Rachel Reeves decides to implement.
The Valuation Office Agency is currently revaluing about two million business properties as part of changes to business rates that are coming in next year. Business properties are revalued every three years.
But residential homes have not been revalued in England since 1992. There are a total of 2.4m homes in the top three council tax bands.
Each valuation would be open to challenge by residents - making it essential that the process is conducted thoroughly.
Tom Bill, head of UK residential research, at Knight Frank, says that revaluing properties in the top three council tax bands “could prove costly and disruptive”.
In an article on the Property Wire website, he said: “The first one is logistical – how do you accurately value the 2.4 million homes in the three council tax bands?
“A valuation that does not go into sufficient detail can be legally challenged, which immediately raises the question of government resources.
“Properties near price thresholds create the biggest headache and challenges can cost the government time and, more importantly, money.
“Higher-value homes are particularly complex to value because there is less uniformity between properties.
“The plan raises other questions. Does valuing a property just above a particular threshold, thus making it liable for an additional payment, itself reduce the value? Will people be put off renovating or extending their homes?
“Not that the properties themselves will all resemble mansions. Four in ten properties in council tax bands F to H are not even detached.”
What’s the problem with council tax and why is it called a regressive tax?
According to the House of Commons library, even after taking account of council tax benefits, the poorest fifth pay a greater proportion of their gross income on council tax than the richest fifth.
Last year the London mayor Sir Sadiq Khan said: “Council tax is a regressive tax as the poorest Londoners pay around six times more in council tax than the highest earners as a proportion of income.”
