Thousands face Rachel Reeves’ mansion tax as homes risk £30k overvaluation

Thousands of homeowners could be hit by Rachel Reeves' new "mansion tax" because of how property values are set to be calculated.

Experts say some homes could be overvalued by as much as £30,000, potentially triggering an annual surcharge of at least £2,500.

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The hike comes as part of the chancellor's new tax is aimed at properties valued over £2 million.

The revaluation - the first of its kind in more than 30 years - will not involve physical inspections to determine property values.

Instead, the figure will be determined using recent sales figures, aerial imagery, and previous planning applications.

These desktop valuations tend to overvalue properties due to the "mathematical average" they use, estate agents claim, but are favoured because they can be generated instantly.

There are now fears that homeowners will swamp the system with appeals, as they try to avoid the new surcharge.

The treasury warns that a £2 million could see its value drop by as much as £50,000 under the proposed tax.

Paula Higgins, chief executive of the HomeOwners Alliance, the advice body, told the Times: "It’s going to be a nightmare. Desktop valuations might be adequate for properties on terraced streets with a high volume of recent sales.

"However, when considering properties priced at £2 million plus in areas like Hampstead or Highgate, some of which may not have been sold in 30 years, each house is unique and requires a more individualised assessment."

The model calculates property values based on location, features, and recent sales.

The new surcharge and the revaluation method will be open for consultation early next year.

It all forms part of the government’s plans to raise revenue from high-value homes.

From 2028, properties worth over £2 million will face a council tax surcharge, split into four bands.

Homes valued between £2 million and £2.5 million will pay £2,500 a year, rising to £7,500 annually for properties worth more than £5 million.

The surcharge will not follow existing council tax bands, which are based on 1991 valuations.

Instead, the VOA - set to be incorporated into HMRC next year - will carry out a separate, targeted valuation exercise to determine property values as of 2026.

The warning about homes being overvalued comes as estate agents gear up for their busiest period of the year.

Boxing Day is traditionally the peak day on platforms like Rightmove, as homeowners list properties to move and settle into a new home by summer.

A similar revaluation approach was used in the recent business rates review, which sparked controversy after property values increased.

For business rates, the Valuation Office used April 2024 data, released after last month’s budget, with the new rates set to take effect in April 2026.

For residential properties, the equivalent source is the Office for National Statistics’ (ONS) House Price Index (HPI), which is used to calibrate the VOA’s in-house valuation tool.

In August this year, the ONS revised its model to estimate missing property data using information from nearby homes, updating the figures as more accurate sales data becomes available.

Simon Rubinsohn, chief economist at the Royal Institute of Chartered Surveyors (RICS), said there was an average London house price disparity of "roughly £30,000" reported by the ONS HPI and the average in Nationwide’s HPI data.

"We know from experience that there isn’t one definitive price for a product in the housing market," he said.

"The very fact that prices are negotiated between a willing buyer and a willing seller demonstrates that a property’s valuation does not guarantee the transaction will occur at that price."

Homeowners will be able to appeal their valuation and have a human come to examine their property.

There could be 190,000 properties worth £2 million or more by 2028, according to research by Knight Frank.

However, there are only 8,000 registered valuers who deal with residential properties.

The new valuations could also be used to calculate other property-adjacent taxes, such as the value of an estate for inheritance tax, industry figures fear.

A VOA spokeswoman said: "We are developing our approach and will set out more details in due course, following the outcome of the government’s consultation and taking into account the specific requirements of this work.

"We employ professional valuers who are involved at every stage using modern technology and industry standard techniques combined with freely available information including sales data, property attribute details and government records. We also inspect properties where needed."