Rachel Reeves is formulating plans that might impose capital gains tax on the sale of family homes, a move seen as targeting pensioners aiming to downsize their properties.

Commonly referred to as a type of ‘mansion tax’, the Chancellor is allegedly seeking to rescind the capital gains tax exemption for owners who sell high-value homes.

This change would affect those in the higher income tax bracket, making them liable for 24% of any ‘gain’ from their property’s appreciation, while basic rate taxpayers would face an 18% charge.

As reported by The Times, Ms. Reeves’ proposal involves revoking the ‘private residence relief’ from capital gains that homeowners currently benefit from, for certain high-value properties.

The threshold at which the relief would end is currently being discussed within the Treasury, the newspaper added.

It’s estimated that setting a threshold at £1.5 million would impact approximately 120,000 homeowners who are higher-rate taxpayers with potential capital gains tax liabilities amounting to £199,973.

Property experts express concerns that this proposed tax on family home sales could significantly affect pensioners, particularly in London and the South East, whose property values have significantly increased, but who wish to move to smaller homes.

If Ms Reeves pushes ahead with such a move, it would also likely attract anger as Labour ruled it out as a ‘bad idea’ ahead of last year’s general election. 

The Chancellor is said to be considering using her autumn Budget to unveil the capital gains tax raid.

She is estimated by economists to be facing a £50billion black hole ahead of her next fiscal statement, which is widely expected to see Ms Reeves hike taxes once again.

It has also been claimed that the Chancellor is eyeing a radical shake-up of stamp duty and council tax, as well as a fresh inheritance tax raid.

Tory leader Kemi Badenoch said this morning: ‘Rachel Reeves will tax anyone and anything to cover for her economic incompetence.’ 

Property experts warned Ms Reeves’ imposition of a ‘mansion tax’ could merely discourage the owners of expensive properties from selling up.

This would gum up the property market and limit the amount of money the Treasury might raise.

They also expressed concerns that pensioners who have seen property values rocket since buying their homes might be left unable to downsize.

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.’

Tom Bill, from Knight Frank, suggested the capital gains tax raid might not raise much money for Ms Reeves.

He said: ‘I’d be surprised if there are any gains to tax at the top end of the property market, given that prices in prime central London are down 20 per cent over the last decade.

‘If there was anything that reduced demand further, then the prospect of gains in the short-term would pretty much vanish.’

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.’

Analysis by Rightmove suggested 10.9 per cent of homes for sale in the capital would exceed a £1.5million threshold, compared with 1.6 per cent outside London.

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. 

‘The London market is already feeling the effects of taxation more acutely than other parts of England, and this is likely to deter some moves at the upper end.

‘While our data shows that only a small proportion of homes for sale are in this price bracket, alongside proposed stamp duty changes, it could be a double whammy for the capital.’

In June 2024, ahead of the general election, Labour denied it would introduce capital gains tax on family homes in a furious clash with then Tory ministers.

A Labour spokesman said at the time: ‘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.’

Sir Keir Starmer also categorically ruled out imposing capital gains tax on the sale of people’s homes during the general election campaign.

The Labour leader said he could ‘absolutely’ guarantee that would not 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.’

Ms Reeves was already facing a furious backlash over a possible and highly controversial shake-up of property levies.

The Chancellor was warned that proposals to replace stamp duty with an annual charge on homes worth more than £500,000 would damage the market as well as punish people who have worked hard to own their houses.

The Guardian reported that owners of houses worth more than £500,000 could have to pay a ‘proportional property tax’ based on the value of their properties when they sell up.

However, sources played down the claims that Treasury officials are looking at this proposal or threshold.

Sources also moved away from suggestions that civil servants are drawing on the findings of a report published last year by think-tank Onward, which proposed that only future owners could pay an annual tax based on the value of the property instead of stamp duty.

Under the plan put forward by economist Professor Tim Leunig, current homeowners would not be hit by the charge, but if they do sell up in future their buyers would pay the levy each year instead of stamp duty at the point of purchase.

It is intended to open up the property market by making it less expensive to move and encouraging those in large homes to downsize.

TV presenter Kirstie Allsopp warned the Chancellor not to risk destabilising the market by ‘flying kites’ about potential new property taxes, telling Times Radio: ‘It’s not Rachel’s to go after because it’s their homes.

‘It’s the roof over their head. And this Government seems to want to punish people for making the sacrifices they’ve made to buy their own homes.’

Treasury minister Torsten Bell declined to rule out hitting people selling their homes with capital gains tax.

He insisted any potential changes were matters for the Chancellor and would be set out at a Budget.

Asked to rule out the move, the pensions minister told broadcasters: ‘Working people and people’s living standards is what this Government is all about.

‘We’ve seen wages rise more in the first 10 months of this Government than the first 10 years of the last Conservative government.

‘But of course, as you know, questions for tax are for the budget and they’re for chancellors.’

A Treasury spokesperson said: ‘As set out in the Plan for Change, the best way to strengthen public finances is by growing the economy – which is our focus.

‘Changes to tax and spend policy are not the only ways of doing this, as seen with our planning reforms, which are expected to grow the economy by £6.8billion and cut borrowing by £3.4billion

‘We are committed to keeping taxes for working people as low as possible, which is why at last autumn’s Budget, we protected working people’s payslips and kept our promise not to raise the basic, higher or additional rates of income tax, employee National Insurance, or VAT.’