More families could be dragged into Rachel Reeves' so-called "mansion tax" nightmare, with leasehold properties worth less than £2million at risk of being caught up in the tax raid. From 2028, property owners could reportedly still be hit with annual bills of £2,500 if their property's true value falls below the council tax surcharge threshold because the lease is shorter than 80 years.

Short leases won't be considered in a revaluation of properties under efforts to decide which exceed the £2m threshold, with an assumption that all leases have 99 years remaining. More than one in 10 leasehold properties are reportedly under 80 years.

The Valuation Office Agency, which oversees council tax, has said its assumptions are that the interest sold was the freehold or, in the case of a flat, a lease for 99 years at a nominal rent, according to The Telegraph.

This means there will be a disparity between a property's saleable value and the value of the leasehold for the purposes of the surcharge.

Shadow Housing Secretary James Cleverly told The Telegraph the Labour Government is already widening the scope of its mansion tax and landing owners with bumper bills.

The Chancellor laid out plans for a new mansion tax of at least £2,500 per year on homes worth over £2m in the Budget last year.

To be collected on top of existing council tax bills, the surcharge will be divided into four bands: £2,500 for a £2m property; £3,500 for one worth £2.5m; £5000 for a property valued at £3.5m and £7,500 for those at £5m or more.

Reports of the tax bombshell come as sweeping changes announced by the Government will see ground rents capped at £250 a year for leaseholders in England and Wales.

New leasehold flats will be banned and existing leaseholders will get the right to switch to commonhold in a bid to give homeowners greater control over their properties.

Making the major announcement in a video posted on TikTok, Prime Minister Sir Keir Starmer said: "I've spoken to so many people who say this will make a difference to them worth hundreds of pounds.

"That's really important because the cost of living is the single most important thing across the country."

The reforms will be published in the draft Leasehold and Commonhold Reform Bill, which will be introduced on Tuesday (January 27).

It comes after backbenchers, including former deputy prime minister Angela Rayner, urged the Government to stick to Labour's manifesto promise to tackle "unregulated and unaffordable ground rent charges" amid concerns the move could impact pension funds.

Writing in The Guardian earlier this month, she said ministers were "subjected to furious lobbying from wealthy investors" trying to water down the commitment and warned people may lose faith if the party could not fix the "obvious injustice" with a cap.

Labour MPs have also previously urged ministers to go further than ending new leasehold flats by scrapping the system entirely.

Housing Secretary Steve Reed said the Government was committed to "a comprehensive reform of leasehold so that we can abolish it" as he faced questions from broadcasters about the changes.

Asked what the timeframe would be for achieving this, he told Sky News that ministers would be able to announce that when they announce the results of a consultation.