Market News

Labour’s mansion tax could force thousands of asset-rich, cash-poor pensioners to sell up, analysis suggests.

Chancellor Rachel Reeves is considering hitting homeowners in properties worth more than £2m with a 1pc annual levy in her November Budget.

However, property experts warned that retirees who had seen the value of their homes rise over several years could be forced to downsize to avoid the extra tax – which would be as much as £10,000 a year for those in £3m properties.

Homeowners in London and the South East, where 82pc of recent sales of properties over £2m were located, would be disproportionately affected, the analysis found.

Tom Bill, at estate agency Knight Frank, warned “cash poor” pensioners were particularly at risk of getting caught up in Labour’s wealth raid.

He said: “It doesn’t follow that if you happen to live in a large house, you have the cash to pay this levy – older people may have been in the house for decades and it has appreciated.

“If a mansion tax were introduced, you would see some older homeowners forced to downsize, whether they were ready or willing to move out of their neighbourhood or not.”

There are approximately 140,000 homes valued at £2m or more in the UK, according to Savills, with 23pc of those sold owned for over 20 years.

Nearly a fifth of homeowners in the highest net property wealth bracket – calculated at £500,000 or more – are over the age of 65, ONS figures show.

Lucian Cook, Savills’ director of residential research, said many of those hit by a mansion tax raid would be older, long-term homeowners who had not prepared for a tax bill amounting to thousands each year.

He added that those in London and the South East, where 82pc of recent sales of properties over £2m were located, would be disproportionately affected.

Ms Reeves is under pressure to plug a black hole of up to £50bn in the public finances.

A 1pc levy on the value of properties in excess of £2m could be introduced as part of a raid on assets, after the Chancellor admitted last week she was looking at tax rises and spending cuts in the Budget.

Sarah Coles, of wealth manager Hargreaves Lansdown, said that discussions about a mansion tax could be “distressing” for retired homeowners.

She said: “People’s homes are the place they’re safe. It can be incredibly emotionally difficult for people in their 70s and 80s to say ‘you need to move house’. Even talking about it is really distressing.”

This is not the first time a mansion tax has been proposed. The idea was first floated by Vince Cable in 2009, before being adopted by the Labour Party under Ed Miliband.

Mervyn King, the former Bank of England governor, criticised the policy on Monday, saying that “adding another wealth tax” risked exacerbating Britain’s excessively complex tax system.

It came as property experts warned buyers and sellers were already putting transactions on ice, resulting from fears of a tax raid.

Estate agents said sellers were cutting their asking prices in an effort to offload homes before the Budget announcement on Nov 26, while buyers who had agreed sales were pulling out.

Uncertainty over the Budget has led to the first annual decline in agreed home sales in two years.

Shares in property companies also sank on the London Stock Exchange on Monday as news of the tax band emerged.

A Treasury spokesman said: “The Chancellor makes tax policy decisions at fiscal events. We do not comment on speculation around future changes to tax policy”.