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Why over 100,000 homes could be hit with £4,500 council tax increase - YAHOO FINANCE
Chancellor Rachel Reeves is reportedly considering an additional tax placed on high-value homes for her budget on 26 November
BY James Hockaday
Rachel Reeves has scaled back her plans for a property tax on the wealthy in this Wednesday's budget, it has been reported.
According to The Times newspaper, the chancellor is set to introduce a "mansion tax" surcharge worth an average of £4,500 on homes worth more than £2m, in an effort to balance the books after she ruled out plans to hike income tax – which would have broken a key Labour Party manifesto pledge.
However, this would see Reeves row back on initial plans for a lower threshold that would have applied the charge to homes worth more than £1.5m, as reported by The Telegraph earlier this month, a move seen as penalising too many homeowners who were asset rich but cash poor.
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The Times said this would result in more than 100,000 properties being affected instead of 300,000, with the treasury expected to use the council tax system to recoup the charge by revaluing 2.4 million of the UK's most expensive homes across bands F, G and H.
Reeves is hoping to recoup up to £450m from the charge, the newspaper said, with owners of more expensive properties paying higher amounts on a sliding scale depending on the value of a home.
A personal finance expert told Yahoo News the mansion tax plans do not go far enough to address the core issues of an outdated council tax system and could end up stalling the UK housing market.
What is being proposed?
The move would reportedly see 2.4 million of the most valuable properties across council tax bands F, G and H revalued.
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A separate surcharge could then be applied to more than 100,000 of the most expensive homes worth more than £2m, on top of existing council tax bills.
According to The Times, the average additional charge could be as much as £4,500 more a year.
The government will reportedly allow homeowners to defer paying the charge until they move house or die. Despite the revised plans on the threshold, the move is still expected to mainly affect homes in London and the south east of England.
Who will be affected?
The policy is expected to mainly affect homes in London and the South East, which are known for their high-value properties.
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Band F to H properties account for around 15% of properties across both regions, according to government statistics, compared to around 5% of homes in the North West, and around 13% of homes in Wales.
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While London and the South East do have a high proportion of these higher band properties, some experts have said the council tax system still has not been revised recently enough to reflect current prices.
"Property prices in England haven’t been revalued for council tax purposes since the system was introduced in 1991," said Sarah Coles, a personal finance analyst at Hargreaves Lansdown and Yahoo Finance's Personal Finance Columnist.
She said earlier this month: "Price rises since then have been lumpy. In London they’re eight times higher than they were in 1991, whereas in the north of England they’re 3.5 times higher.
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"This isn’t reflected in the banding, so someone in a much more expensive home in the south has been paying the same tax as someone in a less expensive home in the north."
Coles said a revaluation of bands "would come at a cost" but would mean a "more realistic reflection of property values in tax bills" and would be seen as "fairer than simply bumping up council tax across the highest property bands".
She says that there is "no guarantee" that owners of the more expensive properties can afford a bigger monthly bill.
"Those who are property rich and cash poor could end up facing a lower standard of living because of something they had no control over, or being forced to sell up and downsize," Coles added.
"It could take a toll on house prices for pricier properties, because people could be wary about buying a home with such a large council tax bill attached.
"If this makes the top of the market more sluggish, it will feed down gradually to cheaper homes, and could hold up sales across the market."
Why is this happening?
The government has for some time been facing calls to make council tax fairer, although this reported additional levy stops short of a complete overhaul of the council tax banding system.
The Institute for Public Policy Research (IPPR) has advocated for an overhaul of an "outdated" council tax system, calling for Rachel Reeves to introduce the following reforms at her November budget:
Raise rates on higher council tax bands, including by 50% for bands F-G and double the rate for the existing H band.
Lower rates on lower council tax bands, with £1bn recycled to cut bills for households in bands A-D by 2.7%.
Raise the foreign buyer surcharge from 2% to 6%, raising around £120 million, ensuring overseas investors contribute more fairly to local communities.
The IPPR said that together, these proposals could raise around £3bn, "while making the system fairer and driving growth by making the system more proportional to market values".
Appearing on BBC Radio 4's Today programme on 17 November, IPPR executive director Harry Quilter-Pinner said the current system in place is "completely outdated".
He said: "It's based on valuations from 1991, and obviously since then, property prices have increased significantly and differently across the country.
"And it's also really unfair, it's regressive. For example, you might have a house in London worth millions that's taxed at the same level, and therefore a lower rate, vis-à-vis the price of that house, than a family home in the north."
The Institute for Fiscal Studies (IFS) has also previously advocated a reform to council tax, suggesting that doubling the amount paid by owners of band G and H properties would raise £4.2bn a year.
How you can check your council tax band?
Council tax is charged on domestic properties, which are split into different bands, the cheapest being A and the most expensive being H.
The bands are based on what the home might have sold for in April 1991:
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Band A - up to £40,000
Band B - £40,001 to £52,000
Band C - £52,001 to £68,000
Band D - £68,001 to £88,000
Band E - £88,001 to £120,000
Band F - £120,001 to £160,000
Band G - £160,001 to £320,000
Band H - more than £320,000
