Both the Labour and Liberal Democrat parties have committed to introducing a Mansion Tax if elected in May, but specific details as to how the tax would work remain largely undisclosed.

Adding bands onto Council Tax has been mooted by many as the preferred method of implementation for Mansion Tax. However, this method presents challenges. Firstly, it may result in the revaluation of up to 20 million homes across the UK, which could cause unintended redistribution with residences across all price levels being placed in higher bands.

Secondly, Council Tax has locally set rates, and is collected and spent locally. But these features make Council Tax an odd choice given Labour’s plans for a nationally set mansion tax whose proceeds have been earmarked for the NHS.

Adapting an existing tax may relieve some of the potential issues of implementing an entirely new tax. CBRE suggests that the Annual Tax on Enveloped Dwellings (ATED) is a strong candidate for this process.

CBRE’s calculations suggest that at least 82,000 properties would qualify for mansion tax. This is substantially higher than the Government’s figure of 55,000. Of these, around 44% will pay £3,000 per annum in Mansion Tax to generate just under £110m of revenue, with the remaining 56% paying approximately £23,775 each, on average, to reach the Labour party goal of £1.2bn per year.

Jennet Siebrits, Head of Residential Research, CBRE, said:

“The proposed Mansion Tax is fraught with difficulty: there is no easy way to implement a tax of this type. Adding bands to the existing Council Tax has been suggested as a model for introducing a Mansion Tax, but this could involve a revaluation of up to 20 million homes. This could lead to unintended redistribution effects for other, lower value, home owners.

“Using a Council Tax model would also defeat the Labour party’s stated aim to help fund the NHS, because revenue would be collected by local authorities rather than by the Treasury to fund state spending on good causes like the NHS.

“We have also discovered the extent to which people with homes worth more than £3 million would be penalised in achieving the overall aim of raising £1.2 billion. Promises made to homeowners in the £2 million-£3 million bracket mean that people owning properties worth more than £3 million would pay an average £23,775 in Mansion Tax per annum.”