Mansion tax: Councils warn Andy Burnham's 'inefficient' £2m property levy may leave authorities out of pocket

The Local Government Association said the new levy risks creating a costly and confusing system for councils

Local councils have warned Prime Minister Andy Burnham that the Government's proposed mansion tax could leave authorities facing significant costs and create unnecessary administrative burdens.

The Local Government Association (LGA), which represents 317 councils across England and Wales, said the proposed levy on homes worth more than £2million risks creating a duplicate system alongside existing council tax.

The surcharge, officially known as the high value council tax surcharge, is due to come into force from April 2028.

Kam Rai, speaking on behalf of the LGA, said councils should not be expected to administer what is effectively a national tax.

He said: "Councils should not be expected to run a new national tax system that could leave them out of pocket and undermine local democratic accountability."

The Treasury has said councils will be "fully compensated" for any additional administrative costs arising from the policy.

Under the proposals, owners of properties valued between £2million and £2.5million will pay an additional £2,500 each year.

Homes valued between £2.5million and £3.5million will face an annual surcharge of £3,500.

Owners of properties worth between £3.5million and £5million will pay £5,000 a year.

Properties valued at more than £5million will be charged an annual surcharge of £7,500.

The Government estimates that more than 165,000 homeowners will be affected by the new levy.

Around 71,000 properties are expected to fall within the lowest charging band, while approximately 15,000 homes will be liable for the highest rate.

Revenue raised by the surcharge will go directly to the Treasury rather than local authorities.

The Government forecasts the measure will raise £400million in its first full year, increasing to £430million by the 2030/31 financial year.

In its response to the Government's consultation, the LGA said the proposals would create significant staffing, legal and technology costs for councils.

The association also warned that identifying and recovering payments from overseas owners and non-resident property owners would require considerable resources.

It said councils with relatively few qualifying properties could face disproportionately high administrative costs compared with the amount of revenue generated.

The LGA also raised concerns about the decision to include the words "council tax" in the official name of the surcharge.

The association said this could lead residents to wrongly believe local councils are responsible for introducing the charge, despite having no control over the policy.

Although the proceeds will be paid to the Treasury, councils would be responsible for issuing bills, collecting payments and enforcing the surcharge.

The LGA has called on the Government to transfer responsibility for administering the levy to a dedicated national team instead of local authorities.

If ministers decide to proceed with councils administering the surcharge, the association said authorities should receive funding in advance to cover implementation costs.

It also called for all communications with taxpayers to make clear that the surcharge is a central Government policy rather than a locally imposed charge.

The policy marks a change from comments previously made by Mr Burnham.

During his 2015 Labour leadership campaign, Mr Burnham described the idea of a mansion tax as the "politics of envy".

Chancellor John Healey has previously supported mansion tax proposals during his parliamentary career, voting in favour of similar measures on multiple occasions.