‘Mansion tax’ rumours at the moment include getting rid of the capital gains tax exemption for the home you live in – for more expensive homes. 

The Treasury is also said to be looking at the idea of a sales tax on homes worth over a specific amount – replacing stamp duty – although the initial threshold included in speculation of £500,000 has been denied.

It is also thought to be looking at a replacement to council tax over the longer term, considering think tank proposals of charging a percentage of the property value annually – with a cap and a minimum of £800.

This isn’t the first time a ‘mansion tax’ has been part of the debate. Mansion tax speculation is profoundly distressing for older people, who are property rich and cash poor. They’re worrying about the prospect of a whole host of options that could mean more tax if they stay in their home, and more tax if they downsize to something more affordable.

There’s also the stress of whether the amount of tax they would pay on downsizing could mean they can’t free up the cash they need – and may not even be able to afford a smaller property. Regardless of whether any of these changes actually make it to the statute books, they are taking a toll on people’s peace of mind.

The speculation could also cause issues for the property market. People in the process of trading up may decide to pause a purchase, because they’re worried about the tax burden they may be taking on. Meanwhile, those trading down might be in a hurry to part with a property they’re concerned could become a tax liability.

An imbalance of demand and supply in what is already a buyer’s market could depress the price of more expensive properties, so that downsizers have to cut their selling price, blowing a hole in their retirement planning. 

What might happen?

We are very firmly in the realms of speculation here, so it’s worth bearing in mind that at this stage, absolutely nothing at all might happen.

Even if the government decided to reform the council tax system, it would take an awfully long time, possibly until the next parliament and there are no guarantees over who could be in power at the time. Assuming it did happen, some people could be better off and some worse off, depending on how it’s structured and the rate their council charges. 

Speculation over a switch from a tax when you buy property to one when you sell is still purely speculation, based on reports that say the Treasury is considering the proposals from Onward – a think tank. The government hasn’t confirmed it’s even looking at this option.

The argument in favour is that it would make property more accessible for first time buyers trying to afford something worth more than £300,000 and make it easier to trade up. However, it would be at the cost of those downsizing or moving areas at the top of the property ladder – unless there were exemptions. Changing a tax like this comes with a huge challenge, because there will be those who have already paid stamp duty on every move up the ladder, who would be hit by a bigger tax on the way down.

The capital gains tax rumour is also said to be something that’s being tossed around in the Treasury, so might well eventually end up being tossed aside. It would be incredibly difficult politically, and any party wanting to be elected in future will have an eye on older voters in marginal seats, so it’s far from a forgone conclusion. If some sort of tax on the gain in property value did eventually emerge, there are no guarantees it would be at the current rates of 18% for basic rate taxpayers and 24% for higher rate taxpayers. Gladstone once said his Parliament had been ‘borne down by a torrent of beer and gin’ – after voters reacted to new licencing laws. No government wants to be borne down by a torrent of angry retirees.

What can you do?

Given that we’re purely in the realms of speculation, it’s vital not to be driven into doing anything you wouldn’t otherwise consider. Whatever property you are thinking of buying is your home first and foremost, and if you have found the right property for your needs, it doesn’t make sense to back out based entirely on rumours.

At this stage, you can’t even do the calculations of what it might cost you, so the only question you have to ask is how tight your budget will be in the new home, and whether you have the wiggle room to cope with any kind of change – whether it’s tax, rising costs, or anything else. For those who will be stretching themselves too thin, it’s a useful reminder of the risks involved, but for those who can comfortably afford life in their new home, there’s nothing to stop you moving on with your life.

If you’re worried about tax on downsizing, the key again is not to rush into anything. Downsizing is a major life change, involving all sorts of compromises and changes, and shouldn’t be rushed before you’re ready for it. This is your home, and you need to be happy in it. Ask yourself if you would be considering the move if it wasn’t for the rumours, and how you would feel if nothing ended up changing. That should help you decide if it’s right for you.

A brief history of the mansion tax

• The Liberal Democrats included a mansion tax in its 2010 manifesto, suggesting a 1% tax on property values above £2 million.

• In 2012, George Osborne, was said to have considered extra council tax bands, taxing pricier properties more heavily. He is thought to have dropped it because of the Conservative pledge not to introduce a mansion tax. 

• Between 2013 and 2015, Labour advocated a mansion tax on properties worth £2 million or more. In 2015 it said the tax would be progressive. The idea was then shelved.

• The Liberal Democrat manifesto in 2015 evolved the pledge, so the mansion tax notion was a banded system, so those with properties worth over £2 million would pay between £2,000 and £9,000 every year. It subsequently dropped it.

• Sarah Coles is head of personal finance at business consultancy Hargreaves’s Lansdown *