The Treasury is banking on the revamped ‘mansion tax’ to bring in a much-needed £400-£450 million, with the surcharge set to be tacked onto council tax bills. Homeowners at the very top of the property ladder will be hit hardest, facing significantly higher bills.

Reeves plans to piggyback on the existing council tax system, ordering a revaluation of 2.4 million of the nation’s most valuable properties across bands F, G and H to pave the way for the controversial cash grab.

Tax hike to target 100,000 homes

More than 100,000 of the UK’s most expensive homes will be slapped with the eye-watering charge, with the Treasury expected to use an escalating scale of bands based on property values to determine the final bill.

Reeves had initially floated a far more wide-reaching version of the tax, which would have started at £1.5 million and ensnared 300,000 households. But fears that the move would unfairly punish “asset rich and cash poor” homeowners, particularly in London, prompted a rethink and a higher threshold.

Deferment option to prevent forced sales

To avoid forcing cash-strapped residents to sell up just to cover the cost, the government will grant homeowners the option to defer stumping up the tax until they either move house or die.

However, the Times has learned that the Office for Budget Responsibility (OBR), the Treasury’s budget watchdog, has warned that the ‘mansion tax’ plans could put the brakes on the top end of the housing market.

The OBR sounded the alarm over the potential “behavioural impact” of the policy, expressing concerns that the surcharge could lead to a slump in high-end property sales. But a government insider insisted the fallout for the housing market would be “minimal.”

There are also fears of “bunching” as savvy homeowners try to game the system by keeping their property prices just below the thresholds for the higher tax rates.

“The OBR has factored in a behavioural response to this with a knock-on effect on the housing market. It has a wider impact,” a Whitehall source revealed.

Long road to implementation

But homeowners won’t have to start counting their pennies just yet, as the controversial policy is unlikely to come into force until 2028 at the earliest – after the planned revaluation of the top three council tax bands is complete.

Lucian Cook, head of UK residential research at Savills, cautioned against any moves that could “undermine the housing market” at a time when the government is scrambling to build 1.5 million new homes.

He branded the ‘mansion tax’ a “compromise measure” that was more about “righting the perceived wrongs” of the council tax system than a serious attempt to fill the Treasury’s depleted coffers.

Uncertainty could ‘throw a spanner in the works’

Tom Bill, head of UK residential research at Knight Frank, warned that the lengthy revaluation process would fuel uncertainty and “throw a spanner in the works” of high-stakes property 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,” he cautioned.

The controversial ‘mansion tax’ is just one dish in a “smorgasbord” of painful tax rises Reeves is preparing to unleash in her upcoming budget, after the chancellor was forced to abandon her plan to break Labour’s key manifesto pledge and hike the basic rate of income tax.

Reeves has promised to shield low earners from the worst of the tax onslaught while bolstering support for those on welfare. She’s vowed to scrap the two-child cap on benefit payments – a move that will cost the Treasury around £3 billion a year – and to raise benefits in line with inflation.

But middle earners are firmly in the firing line, with Reeves set to freeze income tax thresholds for two years until 2030. This stealthy tax grab will drag people into higher tax brackets as their pay packets grow but the thresholds remain frozen, raising £8-£10 billion for the Treasury.

The move will see the ranks of higher-rate taxpayers swell to over 10 million by the decade’s end.

Pensions raid and levies on gambling, EVs and tourism

Reeves is also plotting a multi-billion pound raid on pension contributions, a new levy on gambling firms, a pay-per-mile tax on electric cars and a controversial tourism tax as she desperately seeks to repair the gaping hole in the nation’s finances.

Paul Johnson, the former head of the Institute for Fiscal Studies think tank, said the chancellor’s welfare U-turns mean she’s facing a whopping £10 billion a year in additional spending over the forecast period.

“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,” he warned.