Rachel Reeves plots new 'mansion tax' to fill her huge £40bn blackhole

Rachel Reeves is understood to be considering implementing a so-called "mansion tax" on high value properties as she fights to fill a £40 billion shortfall in the public purse. The Chancellor could use the Autumn budget to end exemption from capital gains tax on homes considered a "primary residence" under new proposals.

The plans are the subject of severe debate within the Treasury, with higher-rate taxpayers potentially in line for a levy of 24% on any profit made when selling a property, regardless of use. Meanwhile, basic-rate taxpayers could be forced to pay 18% of any gains on their property under the proposals. The tax would be applicable to all properties above a stated threshold, although where this threshold would be set is still a topic of fierce debate amongst officials.

According to analysis by the Times, a threshold of £1.5 million would hit around 120,000 homeowners who are higher-rate taxpayers with capital gains tax bills of £199,973.

Critics have warned that the move could simply see the owners of expensive properties leave their homes unoccupied instead of selling up and subjecting themselves to the tax.

Aneisha Beveridge, head of research at the estate agent Hamptons told the Times: "It's a big change that would hit long-term owners hardest and create a cliff-edge at £1.5 million, distorting behaviour around that point.

"While the headline gains look substantial, they're often the result of decades of ownership and, in some cases, house prices haven't even kept pace with inflation.

"For households who don't need to move, this could act as a strong disincentive to sell, dampening transactions and potentially weighing on house price growth and Treasury revenues alike."

Alex Pugh, Financial Planner at wealth manager Saltus believes that uncertainty over the prospect of potential changes could "prompt many to reassess their finances and even reconsider their long-term commitment to the UK."

He added: "While the principle of fairness in the tax system is important, the lack of clarity around plans for a possible wealth tax is understandably causing concern among business owners, entrepreneurs and higher earners - groups already contributing significantly to the UK economy and tax base.

"According to the latest Saltus Wealth Index, more than 45% of high net worth individuals already feel they are paying too much tax, with Inheritance Tax, higher rates of Income Tax, and Capital Gains Tax topping the list of those seen as 'unreasonably high' or as a barrier to economic growth."