One of the UK's foremost tax specialists has issued a stark warning about Chancellor Rachel Reeves' proposed mansion tax, highlighting fundamental flaws in the plan which targets high-value properties.
The Valuation Problem
Dan Neidle, founder of Tax Policy Associates, supports property tax reform but has raised serious concerns about proposals to charge approximately 100,000 of Britain's most expensive homes an average of £4,500 extra. The core issue lies in the government's apparent plan to use council tax bands F, G and H, which haven't been revalued since the system began in 1991.
Mr Neidle explained that determining a property's band requires imagining its value from 34 years ago, creating what he describes as "weird results." He noted that areas with valuable property today but not in 1991 are significantly undervalued, while areas wealthy in 1991 that haven't grown much since are over-valued.
Geographical Disparities Exposed
The expert provided a striking example of this imbalance. In Walthamstow, east London, only 70 properties fall into the top three council tax bands. Meanwhile, in Mid-Buckinghamshire, there are 15,000 properties in these bands, despite homes in Walthamstow now being worth considerably more.
Mr Neidle stated that a proper solution would involve revaluing all council tax bands, though he acknowledged this is "politically tricky" because even if it raised no additional tax, roughly half of households would pay more while the other half paid less.
Potential Market Consequences
The tax expert suggested the government might instead be considering a true mansion tax of 1% on properties worth £2 million or more, which could potentially raise £2 billion. However, he cautioned this approach carries significant risks.
"1 per cent is a lot," Mr Neidle warned. "There are, believe it or not, pretty ordinary people in £3m houses (because when they bought them, they weren't £3m houses). They won't want to sell/rent/mortgage, so will say they can't afford a £10k tax."
This could lead to a deferral system and potentially cause a blockage in the housing market if people become reluctant to sell their homes as values might drop as a result of the tax.
The warnings come as Ms Reeves faces a £20 billion black hole in her spending plans, with hopes for economic growth to fill the gap diminishing after reports that the Office for Budget Responsibility has downgraded its growth forecasts until 2029.
