Rachel Reeves red-faced as OBR says four in 10 mansion tax appeals will succeed

Four in 10 appeals by homeowners against the Labour Government's planned "mansion tax" could succeed, Britain's official forecaster has said. A report published by the Office for Budget Responsibility (OBR) on Wednesday (April 1) also shows Chancellor Rachel Reeves' tax raid would affect 165,000 properties in England from April 2028 when it is due to begin.

Ms Reeves announced plans for her High Value Council Tax Surcharge in November's Budget. The annual charge includes four price bands, with the surcharge rising from £2,500 for a property valued at £2million to £2.5m up to £7,500 for homes valued at over £5m. The tax increases with inflation each year, with the revenues going straight to the Treasury and not local authorities.

The Government has said it will consult on exemptions, the design of an appeals system and any support measures for the scheme.

In its analysis, the OBR assumed the design of the "mansion tax" appeals process would echo those already in place for council tax and business rates.

It noted in its report: "The success rate of these appeals is provisionally assumed to be 40% due to narrow bands and higher-value properties than for council tax."

The policy is forecast to raise £400m in 2028-29, rising to £435m by 2030-31, according to the OBR.

However, the cost of the "mansion tax" was rated at a "high" uncertainty level by the watchdog in part due to the policy's impact on property prices and the size of Britain's tax base.

In its report, the OBR also assumes a higher level of non-compliance than that seen with council tax because owners and not occupiers have to pay the surcharge.

Data cited by the OBR shows about 40% of properties liable for the tax are not owner-occupied, with 10% deemed likely to not pay the charge.

This led the OBR to assume 4% of second home owners would avoid paying the tax, which the Government has said will help address wealth inequality in Britain and apply to 1% of properties.

An estimated 71,000 properties will fall under the £2m-£2.5m band; 54,000 in the £2.5-£3.5m band; 25,000 under the £3.5m-£5m band and 15,000 in the top tier of £5m+, according to OBR and Treasury figures.

The total number of properties rises from 165,000 in 2028-29 to 166,000 in 2029-30 and 167,000 in 2030-31.

However, the policy's banded design led the OBR to caution buyers will likely avoid paying above a certain threshold to avoid having to pay a higher charge.

In its report, the OBR said construction of "high-value" new builds may fall as developers adjust output to reflect the tax's impact.

It also said there would be an incentive to split larger properties into multiple dwellings so owners could avoid having to pay.