Labour faces internal divide over new tax on high value homes in London budget

Labour’s forthcoming Budget is expected to introduce a new tax surcharge targeting England’s most valuable homes as part of efforts to stabilise public finances. The proposed levy will affect properties in council tax bands F, G, and H and is anticipated to impact around 300,000 homes across the country.

Analysis from estate agents Hamptons indicates that a significant number of high value homes in London will remain unaffected, particularly in boroughs that have undergone substantial investment and regeneration. Areas such as Hackney, Lewisham, Southwark, and Waltham Forest, where the proportion of properties in the top council tax bands remains relatively low due to valuations set in 1991, are expected to be largely exempt from the additional surcharge. For instance, in Lewisham West and East Dulwich, just three percent of properties were in the top three bands at the time of the last revaluation.

In Hackney, five percent of homes are currently in bands F, G, or H, although many properties now sell for more than £1.5 million. According to Hamptons, the surcharge will likely apply to homes recently transacted at or above this threshold. Most of the targeted homes are already within the top three council tax bands, but approximately ten percent of £1.5 million-plus homes sit beneath these bands, often in parts of London that have benefitted from recent gentrification.

The party faces internal pressure as backbench MPs challenge the scope of the proposals, concerned that the tax could alienate Labour supporters. Kensington and Bayswater, alongside Cities of London and Westminster, are two constituencies expected to be most affected, with the newly elected Labour MPs for these seats holding comparatively small majorities.

The surcharge is scheduled for implementation towards the end of the decade, after a nationwide revaluation of properties by the Valuation Office Agency. To address concerns about residents being forced from homes, the Chancellor will permit homeowners to defer payment of the new Levy until the property is sold or transferred as part of an inheritance. Critics label this approach as an additional ‘death tax by the back door,’ potentially increasing the inheritance tax burden for families already subject to a forty percent duty.

With Labour holding sixty four of London’s seventy five constituencies, the political calculus of the measure remains under scrutiny. The division between party leadership and backbench MPs illustrates the challenges of balancing revenue generation with protecting support in the capital’s property hotspots.