Chancellor Rachel Reeves has announced the introduction of a new “mansion tax” on properties valued at £2 million and over as one of the measures unveiled in her Autumn Budget.
Around 0.4% of properties, around 145,000, according to Savills, are expected to be affected by this additional charge, which the government describes as a “high-value council tax surcharge”.
Unlike council tax, however, the extra money will not go to local councils, but directly to the Treasury. The Office for Budget Responsibility (OBR) expects this new tax to raise around £400m a year by 2029-30.
The new mansion tax will come into force in 2028, giving those who have to pay it a chance to prepare and the government’s Valuations Office Agency to assess which properties will be liable.
Before the Budget, there were rumors that a mansion tax would be paid at a rate of 1% above £2m, but instead the government opted for four fixed annual rates.
The rate you pay depends on the value of the property – owners of homes worth £2m to £2.5m will pay £2,500; those with properties valued between £2.5m and £3.5m will pay £3,500; those between £3.5m and £5m will be charged £5,000 and those over £5m £7,500 a year.
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“[This] is one of the most significant changes to the UK property market for decades,” says Nick Leeming, chairman of estate agent Jackson-Stops. “For every luxury home owner who moves, you need someone to move. Choosing an annual council tax that stays with the home has the ability to impact both buyers and sellers, creating an uncertain outlook for unsafe homes.”
Chancellor Rachel Reeves announced the introduction of a new “mansion tax” on properties valued at £2m and over during her budget statement. ·House of Commons/Parliament of Great Britain, PA images
Unlike council tax, which is paid by anyone occupying the property, whether they own it or rent, mansion tax will only be paid by owners, so owners of high-value properties will have to find these extra charges.
“The hardest hit will be empty nesters and people who bought their property decades ago simply as a family home, not as an investment,” says Scott Clay, director of Together. “Older, asset-rich but cash-poor homeowners could really struggle as this tax could be equivalent to a whole year’s State Pension.”
The Valuations Office agency will assess all properties that could hit the £2m threshold in 2026. While council tax bands will not change, the agency will look at homes in the three highest bands of F, G and H to see if they are worth more than £2m.
These assessments will not be simple, says Leeming. “As it stands, questions will be raised about the accuracy of the assessment, how homes are assessed and whether this could trigger legal challenges. Taking the time to get the revaluation process right before the 2028 implementation deadline will be absolutely critical to its success, where one legal challenge can open the floodgates for others.”
“Higher-value homes are notoriously complex to value because they lack uniformity, and placing a property just above a threshold could itself lower its market value,” points out Jennet Siebrits, head of research at Ringley Group.
Unsurprisingly, the majority of properties over £2 million are in London and the surrounding South East, so this is where the impact will be felt the most. Figures from property services firm JLL show that 68% of sales over £2m in England were in London, with the highest proportion in Kensington and Chelsea.
“With the threshold set at £2 million, this measure has a direct impact on London’s upper middle classes – who are typically households with mortgages and limited resources. Their sums can only stretch so far,” says Jo Eccles, founder of Eccord Buying Agency.
The new levy will also lead to a ‘bundling’ of properties just below the £2m threshold. “The £1.5m to £1.75m price range will see much increased activity and probably the most growth in capital values as trading volume increases,” says Marc Schneiderman, director at Arlington Residential.
There are also likely to be plenty of people looking to sell affected homes before the tax takes effect in 2028.
“A mansion tax or similar annual tax on high-value homes would almost certainly reduce demand above the threshold and push activity below it,” says Paul Drummond, CEO and co-founder of Swoople. “Sellers of homes over £2m may feel pressure to adjust prices or come up with plans to move, while properties just below that line become even more attractive.”
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It is also likely that in the future an increasing number of properties subject to the tax.
“Over time, more properties will be dragged into the mansion tax system, meaning the proportion of terraced houses, flats and semi-detached houses will increase, particularly in the capital,” says Tom Bill, head of UK residential research at Knight Frank. “The term ‘mansion tax’ may increasingly feel like a misnomer.”
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