The 33,000 property millionaires who could dodge Labour’s mansion tax

Tens of thousands of property millionaires living in “very expensive” homes could escape a mansion tax planned by Chancellor Rachel Reeves, new data shared with The i Paper shows.

Targeting only those in the three highest council tax bands would see some residents in homes worth £1.5m or more dodging the tax expected to be announced at the Budget.

Property and tax experts warned Reeves of a “serious backlash” if her new levy creates “bizarre unfairness” between people living in homes with the same value.

Labour MPs are divided on a mansion tax. Some “red wall” MPs in the north of England are “encouraged” that the Government is willing to embark on property tax reform.

However, Labour MPs in London, worried it will hit too many middle-class families in the capital, and are said to be urging Reeves to scale back the ambition of the scheme.

Mansion tax could ‘unfairly penalise’ homeowners in the wrong bands

All properties in bands F, G or H for council tax – around 2.4 million households in England – would be revalued under Reeves’s mansion tax plan, according to recent reports.

It is thought the 300,000 highest-value properties in these three tax bands could be made to pay a “mansion tax” surcharge on top of their existing council tax.

The Treasury has not confirmed any details on exactly which homes would be hit.

But, if the 300,000 highest-value homes were targeted, properties worth £1.5m or more in the top bands would be hit, according to Hamptons estate agents.

It would leave lots of property millionaires unaffected, new research shows.

There are 33,000 homes in the A to E bands worth £1.5m or more, according to Hamptons data shared with The i Paper.

The data shows most of the unaffected property millionaires would be in band E, which has 18,000 homes worth at least £1.5m. Another 6,000 are in band D, with 9,000 in the lowest A, B and C bands.

Targeting only the top three bands “means some high-value homes in lower bands wouldn’t face the charge, even if they are worth the same”, said Hamptons’ David Fell.

“It potentially becomes problematic in unfairly penalising some homeowners over others,” the senior analyst added.

Reeves banking on ‘lack of sympathy’ for property millionaires

Similar research carried out by PropertyData for The i Paper shows over 16,000 homes in band E are worth at least £1.5m.

“There are properties in band D and E that are very, very expensive – £1.5m, £2m – that will escape and not have to pay,” said Michael Dent, founder of PropertyData. “It’s bizarre. It will create unfairness.”

He added: “[What] the Government will be banking on is that there will not be much sympathy for people whose properties are worth £1.5m. So, will it matter that two people in £1.5m properties are treated differently? It remains to be seen.”

Professor Richard Murphy, director at Tax Research, said Reeves and Keir Starmer will have to prepare for a “serious backlash” if they draw the line at the top three bands.

“One of the characteristics of any tax is that it must be seen to be fair, meaning that all people in a similar position must be taxed equally,” said the tax expert.

“If Labour isn’t going to deliver this on property tax changes, it should expect a serious backlash, and not unreasonably so.”

Reeves urged to overhaul all council tax bands

Aditi Sriram, economist at the left-wing IPPR think-tank, said it was important to keep the number of property millionaires who may the dodge the mansion tax “in perspective”.

Sriram said the 33,000 high-value homes “that may be under-banded represent a relatively small anomaly”.

IPPR backs a mansion tax targeting bands F, G and H as “an important and practical step towards a fairer tax system”.

But the think-tank said a complete overhaul of “regressive” council tax was needed in the long run – urging Starmer and Reeves to go further. “The Government should carry this out within this Parliament,” said Sriram.

It is thought that affected homeowners will be hit with an average surcharge of £2,000 a year. The Government is said to be hoping to raise £600m through the mansion tax.

Caitlin Boswell, Tax Justice UK’s head of policy, said a mansion tax would be “a fair step forward” because it is “asking those with the most to pay a bit more”.

But the left-wing campaigner said Reeves “needs to be much bolder” – also urging for an overhaul of “unfair” council tax so the “most ordinary people pay less”.

Labour MPs divided over mansion tax impact

Labour MPs in the red wall constituencies in the north and Midlands – less likely to be affected – appear happy at the idea of a mansion tax.

“It is very encouraging that the Chancellor is seriously considering property tax reform, which is long overdue,” Jonathan Hinder, MP for Pendle and Clitheroe in the north-west, told The i Paper.

Hinder said council tax was “utterly broken, and needs a complete overhaul”, suggesting that a mansion tax could be a step towards “bold, long-lasting reform”.

However, Reeves is said to be coming under pressure from Labour MPs in London to limit the number of people hit by the tax – hoping the threshold can be pushed to £2m.

“Do they literally want to lose every seat in London?” one Labour MP told the Financial Times. Another told the newspaper that talks on the threshold were still taking place within the Treasury.

Around nine in 10 of the 300,000 homes which could hit by the mansion tax are in London and the South East, according to Hamptons. “It is overwhelmingly a tax on London,” said property expert Dent.

The i Paper revealed this week that the Chancellor told a select group of Labour MPs about her plans for a mansion tax at a drinks reception. One said Reeves urged them to champion tax rises “landing largely on the wealthiest households”.

Treasury concerns about people who are “asset-rich, cash-poor” – particularly pensioners – being hit by the tax mean they could be allowed to defer paying it until they move or after the die.

“It could be difficult for some people on relatively small fixed incomes,” said Hamptons’ expert Fell.

“A deferral mechanism is important, but I’m not sure it will make it much more palatable to people who have to pay. Some might be motivated to downsize and move, rather than pass it on [to their children].”

Conservative leader Kemi Badenoch said a “mansion tax payable on death” was an “unjustified raid on pensioners”. Reform UK deputy leader Richard Tice has called it “cynical and cruel”.

A mansion tax appears popular with the public. A tax on homes worth more than £2m is backed by more than two in three voters, 69 per cent, according to an October poll from YouGov.

A spokesperson for the Treasure said it does not comment on tax speculation outside of fiscal events.