One of Britain’s leading tax experts has raised serious questions over Rachel Reeves’ planned mansion tax on high-value homes expected in her make-or-break Budget.
Dan Neidle, the founder of Tax Policy Associates, is in favour of property tax reform, but has questioned proposals to hit 100,000 of the most expensive properties with an average charge of £4,500, as they would be based on out-of-date valuations.
Ms Reeves is understood to be looking to revalue bands F, G and H to raise more cash to fill a black hole in her spending plans of at least £20bn.
It comes as her hopes for economic growth to fill the spending gap appear to have been dashed, after reports that Britain’s leading economic watchdog, the Office for Budget Responsibility (OBR), has downgraded its growth forecasts until 2029.
Mr Neidle said reports that the government could revalue council tax bands F, G and H “don’t make sense to me” and noted that there has not been a revaluation since council tax was first introduced in 1991, 34 years ago.
He pointed out: “To work out which band your home is in, you have to play a particularly boring game of ‘let’s pretend’ in which your house and everything around it flashes back in time to 1991, and it’s that pretend house that you value.”
He added: “This produces some weird results. There are areas that have valuable property today but didn’t in 1991. These areas are now very undervalued for council tax. And there are areas that were wealthy in 1991 and haven’t got much wealthier since. They’re over-valued.”
As an example, he noted that in Walthamstow in east London, there are just 70 properties in the top three council tax bands, but in an area such as Mid-Buckinghamshire, there are 15,000, despite homes in the former now being worth much more than in the latter.
He said: “It’s an easy problem to solve: just revalue council tax bands. This is long overdue. But the reason it’s overdue is that it’s politically tricky. If revaluation raises £0 new tax, it will still mean (crudely) half of households will pay less tax, and half will pay more.”
He noted that if revaluation had taken place every five years, it would mean few changes for homeowners, but after more than three decades, it has become a significant issue.
He continued: “At this point, some genius may have said, ‘let’s just revalue the top bands!’
“But two seconds’ thought reveals that it makes no sense. If you only revalue the top bands, then very little changes in Walthamstow (because almost all properties are not in the top bands). So I don’t think this is what they’re doing.”
He suggested the government will instead consider a real mansion tax of 1 per cent on properties already worth £2 million or more, which could raise £2bn.
But he cautioned that it could cause a block in the housing market if it prevented people from selling their homes if values dropped as a result.
He warned: “1 per cent is a lot. 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. So we end up with a deferral system.”
He added: “I won’t die of shock if instead we see the simple and unfair outcome: additional council tax on existing bands.”
