Chancellor Rachel Reeves is expected to introduce new council tax bands for expensive homes in England as part of her November 26 Budget.
The Treasury is drawing up plans to make owners of high-value properties pay more, raising several billion pounds for the government.
Sources say adding extra council tax bands for costly homes is seen as the simplest way to tax property wealth. The move would be the biggest change to council tax in decades, creating new brackets above the current top band, which applies to homes valued at more than £320,000 in 1991.
The plan is part of a wider effort to plug gaps in public finances by asking wealthier homeowners to contribute more.
The plans are aimed at helping to close a £30billion gap in the public finances, with property taxes seen as a simpler way to raise money than other options.
Treasury officials considered introducing capital gains tax on people’s main homes, a move Prime Minister Sir Keir Starmer rejected before the last general election.
An annual one per cent tax on properties worth more than £2million was also considered, with advisers warning it would cause major disputes over property valuations. Such a charge would mean a homeowner with a £3million property paying £10,000 a year.
Rachel Reeves has said higher taxes on wealthy households will be "part of the story" in her Budget, but she stressed that any changes must be easy to run and efficient to collect.
Those familiar with the Chancellor's thinking emphasise that "administrative simplicity" remains paramount in selecting the appropriate mechanism for property wealth taxation.
Rachel Reeves has said higher taxes on wealthy households will be "part of the story" in her Budget
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One source close to Ms Reeves' preparations stated: "The idea of increased taxation on high-end homes is well established. The discussion is about how you do it."
Another insider highlighted the political dimensions, saying: "It is vital for the political balance of the Budget, to show everyone is paying their fair share."
The Treasury's preference for utilising existing infrastructure rather than establishing entirely new systems reflects concerns about implementation complexity.
Officials are particularly wary of creating frameworks that might trigger extensive appeals processes or administrative burdens.
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Taxpayers are struggling with the unsustainable burden of council tax | PAEnsuring that people at all income levels contribute fairly is expected to be a key part of Rachel Reeves’ approach to the Budget.
The idea of adding new council tax bands isn’t new. Former Conservative chancellor George Osborne suggested a similar plan in 2012, but it was blocked by then prime minister David Cameron.
Mr Osborne’s proposal would have allowed older or cash-poor homeowners to delay paying the extra tax until after their death, with the money going to central government rather than local councils.
England’s current council tax system is still based on property values from 1991, with Band H covering any home worth more than £320,000 at that time.
The Scottish government is also looking at reforming its own system, with a public consultation under way on more progressive property taxation.
Rachel Reeves will deliver the Budget in November | GETTYProperty sector professionals regard enhanced council tax bands as the "least worst option" amongst various mansion tax proposals. Lucian Cook of Savills noted: "Additional council tax bands would potentially be less damaging than a pure mansion tax or bringing the highest value homes into the ambit of capital gains tax."
Former HMRC permanent secretary Edward Troup suggests elevated property taxes could offer political protection if the Chancellor implements broader tax increases affecting ordinary workers. He stated: "The idea of an effective and painful mansion tax on the wealthy feels like part of a consistent political package."
Estate agents anticipate market adjustments, with Winkworth's Dominic Agace predicting increased downsizing amongst elderly homeowners. He said: "I would expect it would mean an increased number of bigger properties coming to the market and, so, potentially downward pressure on prices for houses."
Knight Frank's Tom Bill expects initial market repricing followed by smoother operations, whilst even some affluent property owners acknowledge reform necessity.
Former Goldman Sachs executive Michael Sherwood told the Financial Times that council tax was "very unfair", adding: "If you have more expensive homes, you should pay more for them."