Rachel Reeves's mansion tax to cost £380million before raising a penny

Labour's mansion tax is forecast to drain nearly £400million from public finances before generating any income, according to figures obtained through a freedom of information request.

Officials expect stamp duty and inheritance tax receipts to fall by £230million over the next three years, as property prices around the £2million threshold come under pressure.

On top of that, the government is set to spend a further £150million identifying and valuing homes that fall within the scope of the tax.

In total, the upfront cost is estimated to reach at least £380million before the policy brings in any money.

The measure was announced by Chancellor Rachel Reeves in last year’s Budget after pressure from Labour MPs to increase contributions from higher-value property owners.

From April 2028, homeowners with properties worth £2million or more will pay an annual charge on top of their existing council tax bill.

Four payment bands determine the amount owed: those with homes worth between £2million and £2.5million face a £2,500 yearly charge, rising to £3,500 for properties valued up to £3.5million.

Owners of homes in the £3.5million to £5million bracket will pay £5,000 annually, while the highest tier imposes a £7,500 charge on properties exceeding £5million in value.

Property agents report the levy is already reshaping market behaviour well before its implementation date.

Aneisha Beveridge, head of research at Hamptons, said: "Losing only 1.5 per cent of sales feels like quite a small figure.

"Our analysis suggests the mansion tax is already shaping behaviour for both buyers and sellers, particularly around the £2million entry point."

Purchasers seeking homes near the threshold have increasingly structured their offers to keep final sale prices beneath £2million.

Vendors are responding in kind, with listings priced between £1.8million and £2million climbing 6 per cent year on year in the two months after the budget announcement.

Meanwhile, properties marketed between £2million and £2.2million dropped by seven per cent over the same period.

Despite these upfront costs, Treasury projections indicate the policy will ultimately yield approximately £1.4 billion during its first three years of operation.

After accounting for implementation expenses and reduced receipts from other taxes, officials estimate a net return of £930 million by 2031.

The levy is expected to affect 156,000 homeowners, with typical qualifying households paying close to £3,000 annually.

Industry figures worry the threshold may be lowered in future. Beveridge said: "When governments bring in thresholds like this, generally they tend to come down.

"So we could see future governments tweak the £2million level just to pull in more tax."

The Treasury defended the measure, stating it would raise funds to support public services while addressing inequities in the current council tax system.