More than 150,000 homeowners to be hit by Rachel Reeves 'mansion tax' as market slows amid speculation

Owners of higher-value properties are reportedly in the crosshairs of the Treasury ahead of the Autumn Budget, as it looks to plug a £22bn hole in the public finances.

An annual 1 per cent tax on the portion of a property's value above £2m is among the proposals being considered by Chancellor Rachel Reeves.

This would mean on a £2.5m property, the tax would cost £5,000 a year.

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These "mansion" owners could also lose out on a capital gains tax exemption, which they would usually benefit from after selling their main residence.

According to the estate agency Knight Frank, this tax hike would impact about 0.54 per cent of homes in England and Wales — around 150,000 in total.

The vast majority of these properties are concentrated in London and the southeast, with 18.5 per cent of properties in the London borough of Kensington and Chelsea worth £2m or more.

Knight Frank suggest a lower threshold of £1.5m would affect about 310,000 properties in England and Wales - 1.1 per cent of all homes.

Estate agent Tom Bill told the Times: "You could see the appeal for the Treasury of an annual tax as it would be a regular flow of revenue, compared with a transaction-based tax such as capital gains tax, which could have unexpected behavioural responses and not raise what they want.

"If it was introduced on its own and not alongside any transaction-based taxes, it would be more palatable for the market, particularly if it was pitched as a long-overdue reform of council tax bandings."

The removal of capital gains exemption would leave higher-rate taxpayers having to pay 24 per cent of any increase in their properties value when they sell.

Basic-rate taxpayers would have to pay 18 per cent.

The exemption would still apply to properties below a certain threshold, although this figure has not yet been agreed.

Some 64 per cent of buyers said a capital gains tax on high-value homes would have either a “somewhat” or “significant” negative impact on them moving house.

Former Bank of England governor Mervyn King said the annual tax proposal smacked of a "back of a fag packet" approach by the Treasury to raising money.

"It is not the most straightforward thing to do — revaluing would take time and could be subject to legal challenges," Mr Bill said.

"It would also be heavily skewed to London and southeast England, and may hit those who are asset-rich but cash-poor, such as older people who have been in their homes for decades but might not have the cash to cover any tax."

Experts say the top-end of the property market has already been affected by the property tax rise speculation.

The £1.5m-plus properties sold in September by estate agency Hamptons were on the market for a record-breaking average of 141 days before an offer was accepted.

This was up from 130 days in September last year.

The previous record of 140 days came in September 2016, when a 3 per cent stamp duty surcharge on additional properties rocked the upper end of the housing market, which was also hit by the UK's vote to leave the European Union.

Aneisha Beveridge from Hamptons said: "This is a market largely driven by discretionary movers — people who are financially secure and not under pressure to buy. In that context, even the suggestion of future property tax changes is enough to prompt a pause.

"Budgets are increasingly becoming key dates in the prime market’s calendar. The recent wave of speculation, particularly at a time when the government has been vocal about the need to raise more money, has had a chilling effect on momentum. It’s not that confidence has collapsed — it’s more a case of buyers sitting tight until the dust settles."

The Treasury said: "The chancellor makes tax policy decisions at fiscal events. We do not comment on speculation around future changes to tax policy."