Why the mansion tax and council tax might sting you even if you live in a two-bed semi

Fears are rising over potential tax raids coming in this year’s Budget, which chancellor Rachel Reeves will unveil on Wednesday.

Among those are mooted council tax hikes as well as a new ‘mansion tax’ on more expensive houses.

Both of those could batter homeowners in London and the south east, where house prices have skyrocketed in recent years.

On council tax, Reeves could shake up the banding system, which means owners of the most expensive houses may end up paying even more of the levy, The Guardian reported.

The mansion tax, meanwhile, would see an annual charge slapped on homes above a certain value – initially set to be a 1% charge on homes above £1.5 million.

Those plans have been watered down to only hit homes above £2 million, reported the Times, amid fears that it would hit people who are asset-rich but cash-poor. 

That would see owners of houses worth £2.5 million pay £5,000 per year, and owners of £3 million properties would pay £10,000.

But despite being dubbed a mansion tax, fears remain that it could still sting those in more modest buildings.

In Highgate, north London, even owners of a two-bed terrace could end up paying the charge. The owner of one listed on Rightmove at £2.05 million would pay £500 a year.

And in Little Venice, west London, a semi-detached two bedroom property is listed on Rightmove at £3.5 million, which would net a £15,000 charge under the new rules.

Property agency Hamptons says that of the roughly 100,000 homes in the country worth more than £2 million, half are in London and 85% are in the south of England.

Homeowners in other parts of the country may not have much sympathy for Londoners with a multimillion-pound asset – but Hamptons has also said it could depress values of homes approaching the threshold and create a valuation ‘cliff edge.’

When is the Budget and what else will it include?

The Autumn Budget will happen on Wednesday at 12.30pm, after months of leaks and speculation over potential tax rises and changes to the benefits system.

You can watch it live on all major news channels such as the BBC, Sky and ITV. It is also available online via the House of Commons’ own website, Parliamentlive.tv.

Reeves is expected to lift the two-child benefit limit, a policy brought in under the Conservatives that means low-income families can only get welfare payments for their first two children.

The move is forecast to cost about £3 billion. It has been welcomed by Labour MPs who have pointed to the cap’s impact on worsening child poverty. 

However, the Conservatives and Reform say lifting the cap means hiking welfare spending when the government already does not have much wiggle room on the public finances.

Reports over the weekend suggested that Reeves would try to head off that criticism by launching a fresh crackdown on benefit fraud, designed to save £1.2 billion, according to the Guardian.

Income tax

Reeves is widely expected to try to bring in more money from taxes – but she has backed away from the option of raising income tax, which was being considered in recent months.

Instead, she is now thought to be planning on freezing the salary levels that people start paying the taxes until 2030, which is two years longer than planned, according to the Financial Times.

The Institute for Fiscal Studies has said Reeves will ‘almost certainly’ have to raise taxes to bring in funds to meet her economic targets.

Rail changes, electric vehicle taxes and DLR extension

Train fares will be frozen in the Budget, in a measure that is expected to save some commuters more than £300 a year. 

And in London, Reeves is expected to approve funding for an extension of the Docklands Light Railway, which would see trains finally extend to one of the city’s poorest districts.

The move would see Thamesmead, in south east London, connected to the DLR network for the first time.

For electric vehicle drivers, Reeves will add £1.3 billion to a grant that takes as much as £3,750 off the price of an EV.

But the chancellor is also thought to be considering a tax of 3p per mile for EVs, as part of a move to protect tax revenues as people increasingly move away petrol and diesel cars, for which drivers pay fuel duty.

More housing changes

The BBC reported that landlords may also be required to pay National Insurance (NI) if being a landlord is their main job, they rent out more than one property or they are buying new properties to rent out.

A focus on landlord taxes may be particularly awkward for the Chancellor, after she faced calls to resign last month over failing to apply for a licence for renting out her family home in London.

It has also been suggested that the government may replace stamp duty, a tax that buyers pay on homes above a threshold value, with a property tax.

And the Times has reported that Reeves could introduce capital gains tax (CGT) – which paid on assets that have increased in value when they are sold – for more expensive homes. 

Alcohol duty

Drinkers could also be in the chancellors’ crosshairs, amid reports that alcohol duty is expected to rise across the board.

That would mean the price of a bottle of wine rises by about 15p, while a four-pack of lager would see a roughly 7p increase.

It is unclear whether any changes would also apply to pints poured in pubs, but industry groups have appealed to the government to exempt them.

The British Beer and Pub Association estimates that one pub a day is expected to have closed down over the course of this year, after the industry was also hit by an increase in National Insurance Contributions.

Pensions

Reports have also surfaced that the government plans to restrict the 25% tax-free cash that can be taken from pension pots once people reach the age of 55.

According to The Times, the plan to limit tax-free pension contributions hopes to raise £2 billion.

Reeves may also limit how much can be put into a pension fund without paying National Insurance to a £2,000 cap.

That would apply to workers using ‘salary sacrifice’ schemes to contribute to their pensions.

Get in touch with our news team by emailing us at webnews@metro.co.uk.

For more stories like this, check our news page.

Comments Add as preferred source