Council tax bills will soar by up to £3,600 a year under SNP proposals for a new ‘mansion tax’, leading to concerns it could damage Scotland’s entire property market.

The SNP Government has launched a consultation which proposes punishing tax hikes for around 15,000 properties estimated to be worth more than £1 million.

But the latest SNP tax grab led to fears it could deter high net worth individuals from investing in Scotland – causing chaos for the rest of the property market and the wider economy.

A new council tax ‘band I’ costing an average of £4,770 a year will be charged on homes with an ‘open market value’ of between £1 million and £2 million under the proposal, which is around £720 a year more than current charges.

Homes costing more than £2 million would face an average ‘band J’ bill of £7,650, which is around £3,600 more than the current band H levels.

The proposals will only raise between £12 million and £16 million a year extra for local authorities.

But they led to concerns about the damaging impact on some individuals who help generate wealth and growth for the Scottish economy.

Scottish Conservative finance spokesman Craig Hoy said: ‘This performative proposal is another example of a headline-grabbing SNP idea that falls down on closer inspection.

Finance Secretary Jenny Gilruth said Scotland’s wealthiest will need ‘to contribute a bit more’

‘In targeting a small minority of properties, the revenues these new bands would bring in won’t touch the sides, and that’s before the administrative costs are factored in.

‘But there is a real danger that these punitive rates put people off buying in Scotland, which could damage the entire housing market.

‘A mansion tax would also unfairly hit some asset-rich, cash-poor individuals – such as widows on modest pensions who are still living in the family home. Like rent controls, a mansion tax sounds superficially attractive but would actually do lasting harm to the housing market.’

The properties which have to pay the new band I and band J charges will be those judged to have an ‘open market value’ of more than £1 million or above £2 million.

Scottish Assessors, who are independent of local and national government, will be asked to assess the properties which fall into these bands using recent comparable sale data, property characteristics and market evidence.

This differs to the rest of the council tax bands from A-H, which will continue to have their charges set using 1991 property values.

Scotland already has higher rates of income tax than other parts of the UK for those earning more than £33,493, as well as higher land and buildings transaction tax charges than the stamp duty system south of the border.

Steven Currie, director of residential sales, lettings and investments firm Murray & Currie, said: ‘People are going to come to a point where they are going to say there’s an extra £700 here, food is more expensive, fuel is more expensive, school fees are up, and something has got to give.

‘It might well be that we have people who own these types of properties who will be considering their future and where they are going to live because of the tax bands and it will make people have these conversations.

‘If we keep chipping away at people, they will at some point say “hang on a minute, this is getting more expensive” and they will look at school fees and look at the cost of living and think “are we getting value for money”?

‘So I think more people will be considering their options. If you keep on nudging and poking people there is going to come a bit of resistance and you’ve got to think for the additional funds they are going to raise through band I and J is it really worth it for the tax receipts?’

He also warned that the proposal could create a £2 million ‘ceiling’ on purchases because people want to avoid the additional taxes, and said this could impact on ‘aspirational buyers’ further down the housing ladder that want to grow the value of their home over many years.

He added: ‘People will be making choices which will impact economies, shops, restaurants and bars. That’s the knock-on effect.

‘Everyone across this journey needs confidence and need to feel valued.

‘It feels like there is a Government trying to create a divide in our country and nobody wants that. Because of these changes and these aggressive taxes and tariffs and attacks on a lot of the private sector it does feel there is a force trying to divide our country and it needs to change.’

A new council tax ‘band I’ costing an average of £4,770 a year will be charged on homes with an ‘open market value’ of between £1 million and £2 million 

The Scottish Government estimates that the band I charge will raise between an extra £9.13 million and £12.05 million a year, while band J will raise between £2.74 million and £3.85 million.

It also estimates that between 12,680 and 16,740 properties will fall into band I, with between 760 and 1,070 in band J. Its central estimate is there will be around 15,000 properties across the two bands.

Scottish Green MSP Lorna Slater said: ‘The launch of this consultation is an important milestone. The mansion tax will raise vital funds for schools, libraries and other local services, while helping to respond to Scotland’s housing emergency. 

‘It is happening because Scottish Green MSPs and housing campaigners made it a priority in budget negotiations.’

The Scottish Government consultation will run until August 24.

Deputy First Minister Jenny Gilruth, the Finance Secretary, said: ‘Our approach to tax is based on fairness – asking the wealthiest among us to contribute a bit more. As it stands, some multi-million pound properties have council tax bills that are not materially different from those faced by people living in far more modest homes.

‘Our progressive approach to taxation helps to target investment in economic growth, deliver public services and support cost of living measures not available elsewhere in the UK, such as free tuition, free prescriptions and our plans for a £2 bus fare cap across Scotland.

‘Additional revenue raised through these new council tax bands will be retained in full by local government to support the local services communities rely on – unlike the UK Government’s proposals for a similar scheme that are set to be returned to the Treasury.’