Homeowners with homes valued at £2 million or higher will face a so-called ‘mansion tax’ from April 2028, announced Chancellor Rachel Reeves in today’s Budget.
Speaking in the Commons the Chancellor said: “A band D home in Darlington or Blackpool pays just under £2,400 in council tax nearly £300 more than a £10 million home in Mayfair.
“From 2028 I am introducing the High Value council tax surcharge in England, an annual £2,500 charge for properties worth more than £2 million, rising to £7,500 for properties worth more than £5 million…
“This new surcharge will raise over £400 million by 2031 and will be charged on less than the top one per cent of properties.”
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London Standard
Owners of properties identified as being valued at over £2 million by the Valuation Office (in 2026 prices) will be liable for the annual stamp duty surcharge.
There are currently about 145,000 UK homes valued at more than £2 million according to Savills but Knight Frank estimates that number will rise to 190,000 by 2028.
JLL data showed sixty-eight per cent of £2million-plus sales in England were in Greater London with the highest proportion in Kensington and Chelsea, followed by Westminster then Camden giving an indication of where the clusters of multi-million-pound homes are in the capital.
Eight of the top 10 local authorities in the country by the highest number of £2 million-plus sales were London boroughs, and the outlying two in the Home Counties (Elmbridge and St Albans).
How will the new ‘mansion tax’ work?
There will be four price bands with the surcharge rising from £2,500 for a property valued in the lowest £2 million to £2.5 million band, to £7,500 for a property valued in the highest band of £5 million or more, all uprated by CPI inflation each year.
It has been estimated that the average surcharge will be around £4,000.
The four stamp duty surcharge price bands
|
Threshold |
Annual rate |
|
£2m to £2.5m |
£2,500 |
|
£2.5 to £3.5m |
£3,500 |
|
£3.5m to £5m |
£5,000 |
|
£5m+ |
£7,500 |
Council tax bands were introduced in 1992 with properties placed in different bands depending on their perceived value back then. Of course, house prices in London have escalated wildly since then in areas which were not deemed in high demand, fashionable or expensive in the early 1990s, such as Hackney or Waltham Forest.
It is thought those properties in the most expensive bands, F, G and H will be caught by the tax which equates to 600,000 homes in London, according to research carried out for the London Standard.
However, a revaluation overhaul would have to follow at some point to capture those properties bought for less than £2 million but which have undergone renovation work to take them over the threshold.
“How forensic would a re-valuation exercise be and would it be down to each local authority to carry this out?,” asked Marcus Dixon, head of residential research at JLL.
“Property tax in the UK is already overly complicated and not equally distributed and it stops housing market activity.
“If the government focused on getting transaction levels up by 50 per cent so that we revert to moving five times in our lifetime rather than three, the tax haul would be far greater as would the positive impact on the economy and growth,” he said.
Reaction to the mansion tax: ‘a terrace tax, not a mansion tax’
Dominic Agace, chief executive of Winkworth, called the levy a terrace tax, not a mansion tax.
He said: “Many £2 million plus properties are likely to be terraced family homes. There is a danger that more uncertainty will be the result of this move, with delays on the revaluations inevitable.
“Many people living in London in £2 million plus homes are those who are leveraged with large mortgages or those with their property as their only asset and living on a small retirement income.”
Tom Bill, head of UK residential research at Knight Frank, said: “Until the revaluations take place, buyers and sellers face years of uncertainty, especially around the £2 million threshold. Even once completed, new valuations can be challenged, which would prolong the limbo.
“The policy may also raise less than expected, especially because it is deferrable. If opposition parties say they would scrap it, many homeowners will look at the opinion polls and wait it out.
“When you factor in the cost of carrying out the valuation and the potential lost stamp duty revenue from a stickier market, the sums raised could look like a rounding error for the Treasury.
“More properties will inevitably get dragged into the mansion tax net, which means the proportion of terraced houses, flats and semi-detached homes will grow over the years, particularly in the capital. The term ‘mansion tax’ will increasingly feel like a misnomer.”
Jason Tebb, president of OnTheMarket property portal said the surcharge could even decrease stamp duty revenue if transactions drop in response.
He continued: “Those who will be hit hardest are retirees or long-term owners who bought their homes decades ago. Their property value may have doubled or trebled, but their pension income has not. They could now be facing tax bills that exceed their disposable income.
“The market impact may well be a “ceiling” effect just below the £2m mark with sellers forced to reduce asking prices to make the property attractive to buyers avoiding the surcharge. This was the effect of historic Stamp Duty “ceilings” in which properties above £250k saw a straight jump from 1 per cent to a 3 per cent rate, so buyers were offering £249,999 on properties on the market for as much as £270k.
Mansion tax drowns out a far bigger problem
While experts predict that this new annual surcharge will depress sales on good sized family homes further in the capital — it may even lower asking prices around the £2 million mark — for the majority of young families it is irrelevant.
For many, the move from that first apartment into a house within their London borough is impossible as the price gulf between apartment and house continues to widen.
New research, exclusive to Homes & Propertyreveals that the cost of a semi-detached house is 164 per cent more than the cost of the average flat this autumn. The smallest difference was 127 per cent in 2014.
Despite limited house price growth across all housing types since then, the gap has grown significantly in both percentage and cash terms, from £99,600 to £283,000, according to Hamptons.
Apartment prices have been relatively flat during those years, according to Land Registry data, with values climbing 7.7 per cent. The average price of a terraced house has risen more than threefold (22.2 per cent).
Those young families trying to upsize from an apartment to a family-sized home are therefore facing a huge jump in mortgage value and mortgage repayments and cannot rely on amassing equity in their first property.
The high demand for family-sized homes versus flats, with first-time buyers struggling to meet the deposit requirements or secure a mortgage, is clear. It takes a vendor selling a flat 20 days more to find a buyer than one selling a three-bedroom home, and an extra month to get the deal to completion.