Properties worth more than £2m face new tax

Owners of tens of thousands of properties in England valued at more than £2m are set to be hit with a surcharge of at least £2,500 from 2028, in what has been dubbed a mansion tax.

The annual charge will come on top of existing council tax, and will increase depending on the price of a property - with four separate bands.

These will go from the lowest band of £2m to £2.5m, with the highest for those valued at £5bn or more, who will pay £7,500 a year - with the bulk of all the properties affected based in London.

In its assessment released in error ahead of the Budget, the Office for Budget Responsibility (OBR) expects the measure to raise about £400m a year by 2029-2030.

The charge on properties valued at more than £2m is part of a range of tax rises included in Rachel Reeves' Budget to allow her to meet her own self-imposed financial rules.

While the charge is imposed on top of existing council tax, but rather than going to the local authority, will go the the Treasury.

In its assessment of the tax, the OBR said it expected the tax would begin to be reflected in the price of properties, with "price bunching to just below each band boundary".

This refers to the incentive to value a property just below the price at which it would become liable for the charge - something which "reduces the estimated yield by reducing the number of properties in scope of the measure".

The band at which properties will become liable for the charge will increase in line with inflation.

In its assessment, the OBR said the costings for the new surcharge had a "high" degree of uncertainty.

Properties will be assessed based on 2026 valuations provided by the government's Valuations Office Agency.

There have been calls for the reform of the way the council tax system works in the United Kingdom, as it is based on the value of a property in 1991.

In its Green Budget, the Institute for Fiscal Studies described a revaluation of council tax bands as "long overdue".