Up to 10,000 families in the Portsmouth area were told that they would not fall victim to a council tax timebomb.
Environment secretary John Gummer rushed out an emergency order scrapping the system which allowed backdated bills to be handed out if homes sold for more than expected.
The National Audit Office said about five per cent of homes were paying too little after being undervalued when council tax bands were set.
The root of the problem occured when estate agents, who valued millions of homes for council tax purposes, were told to revalue properties whenever ‘new information’ came to light.
That included someone selling their home for considerably more than the original valuation.
Other taxpayers in similar houses in the street could have suddenly found themselves in a higher band and been presented with retrospective bills running into hundreds of pounds.
Under the new rules, neighbours could still have had their tax band raised after a sale, but any extra tax would have to date from that moment.