Experts have warned that a “mansion tax” could have a destabilizing impact on the market.
It seems likely that around 150,000 homes worth more than £2 million will be hit by an annual levy in tomorrow’s budget, reports suggest.
The threshold at which the annual levy would come into effect was confirmed yesterday “by people aware of the budget”, according to the Financial times.
Savills estimates there are around 145,000 homes in Britain worth £2 million and over, the majority in London and the South, while Knight Frank previously estimated the figure at around 150,000.
To introduce the tax, properties in the three highest municipal tax bands F, G and H would have to be revalued for the first time since 1991.
This means the levy is unlikely to come into effect before 2028, the reports said.
It is thought that costs will be on a sliding scale, but the average will be around £4,000 per year.
Homeowners may be given the option to increase the annual levy and pay it upon sale of the property or upon death, similar to an equity release plan.
Logistical obstacles
Knight Frank, head of UK housing research Tom Bill, says revaluing properties for council tax purposes can be tricky.
He says: “A valuation that is not sufficiently detailed can be legally challenged, which immediately raises the question of public resources.
“Property near price thresholds causes the biggest headaches and challenges can cost the government time and, more importantly, money.
“Homes with a higher value are particularly complex to value because there is less uniformity between homes.”
Furthermore, he questions whether valuing a property just above a threshold that makes it liable for the levy would itself reduce its value.
Additionally, homeowners may be reluctant to renovate or expand their properties due to the potential tax burden.
House prices in central London have already fallen by 21% in the past decade, data from Knight Frank shows, while indices suggest that average UK prices have risen by 41% in the same period.
Separate figures from Rightmove show that agreed sales of homes worth £2 million and over have fallen 13% year-on-year as speculation over the tax and other budget measures appears to have dampened activity.
The risks of taxing cash-rich, cash-strapped homeowners
Jackson-Stops chairman Nick Leeming said: “Existing downward pressure at the top must be balanced against the wider stability of the housing market.
“Many potential sellers, especially those with mortgages, will be asset-rich and cash-poor.
“Understanding the limits of generating income from perceived wealth rather than income, against decades of unprecedented house price inflation and huge regional disparities, is absolutely crucial.
“Any cliff-edge reform could put new roadblocks in the way of migrants and risk capital flight, slowing economic activity.”
Becky Fatemi, executive partner of Sotheby’s International Realty, says: “£2 million may sound like a fortune, but in London and much of the South East it won’t buy a country house.
“You buy a good family home in a great catchment area or a nice apartment in an easily accessible neighborhood.
“Homeowners have already paid huge amounts of stamp duty, council tax and maintenance.
“Asking them to pay again every year for the privilege of owning their home would punish the very people who keep the market moving.
“What about those who bought decades ago and simply watched their homes increase in value over time? They’re not the super rich.
“These are long-term owners who are suddenly faced with an annual bill that they have no control over.”