Expert warns Rachel Reeves' new property tax will hit downsizing pensioners in fresh blow

As Rachel Reeves continues to contemplate the introduction of a new property tax on high value properties in a bid to to fill a £40 billion shortfall in the public purse; despite being dubbed the 'mansion tax' it's pensioners that could be the ones left feeling the greatest pinch.

Under the proposals being considered, the Chancellor is reportedly looking to end the exemption from capital gains tax when owners of higher-value properties choose to sell.

Higher-rate taxpayers could therefore potentially be 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.

However, experts have now warned that implementing such a policy could hit pensioners looking to downsize their properties post retirement, particularly in London and the South East where property values have skyrocketed in recent years.

The imposition of a 'mansion tax' could also slow the property market in general, as individuals choose to let their properties sit empty rather than sell up in a bid to avoid paying out a hefty capital gains tax bill.

According to the Daily Mail, Aneisha Beveridge, head of research at Hamptons, said: 'It's a big change that would hit long-term owners hardest and create a cliff-edge at £1.5million, 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."

If downsizing is also no longer on the table for some pensioners who are considering selling their family homes, this also has a knock on effect to the property market on the whole, with less larger family homes being available on the open market.

Simon Brown, of property data company Landmark Information Group, said: "Any tax that rises with property value risks slowing the housing market even further.

"If downsizing becomes less attractive, larger family homes stay off the market and transaction volumes fall.

"This reduces overall movement in the market upwards and downwards, and not only reduces choice for families and first-time buyers, but also hits the Treasury by shrinking the tax base."

It is currently estimated that around 1.6 per cent of homes outside London would exceed a £1.5million threshold, while 10.9 per cent of homes for sale in the capital could be hit by the tax, according to the latest Rightmove data.

Colleen Babcock, Rightmove's property expert, said: "In essence this would predominantly be a tax on the most expensive areas of London and the South East."

Introducing the tax could also leave Ms.Reeves in hot water with several of her Labour peers, after the party categorically denied it would introduce capital gains tax on family homes back in June 2024 ahead of the general election.

Speaking at the time, a Labour spokesman said "No. Labour will not introduce capital gains taxes on primary residences. It's a bad idea.

"The Conservatives are lying. It's a sign of utter desperation that the Tories are talking about things they have imagined, and that Labour isn't doing."

Prime Minister Sir Keir Starmer also denied the possibility when he said he could 'absolutely' guarantee that no such capital gains tax would happen, adding: "There was never a policy so it doesn't need ruling out, but let's rule it out in case anybody pretends that it was."