Chancellor Rachel Reeves has announced the introduction of a new “hancement tax” on properties worth £2m and over as one of the measures unveiled in her Autumn Budget.
It is estimated that around 0.4% of properties, around 145,000, according to Savills, will be affected by this extra charge, which the government is describing 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 the new tax to raise around £400m a year from 2029-2030.
The new mansion tax will come into force in 2028, giving those who will have to pay it a chance to prepare, and the government’s Valuation Office agency to assess which properties will be liable.
Pre-Budget, there were rumors that a mansion tax would be levied at a rate of 1% over £2m, but, instead, the government opted for four flat annual rates.
The rate you pay depends on the value of the property – owners of homes between £2m and £2.5m will pay £2,500; Those with assets between £2.5m and £3.5m will pay £3,500; Those between £3.5m and £5m will be charged £5,000 and above £5m, £7,500 a year.
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“[This] is one of the most significant changes in the UK housing market in decades,” says Nick Leeming, chairman of estate agents Jackson-Stops. “For every high-end homeowner, you also need someone to move in with. By choosing the annual council surcharge that stays with the house, it affects both buyers and sellers, creating precarious housing.”
Chancellor Rachel Reeves announced in her Budget statement that a new ‘mansion tax’ would be introduced on properties worth £2m or more. ·House of Commons/UK Parliament, PA Images
Unlike council tax, which is paid by anyone occupying a property whether they own it or rent, mansion taxes will only be paid by owners, so homeowners with high-value properties will have to look out for these extra charges.
“The worst hit will be ’empty nesters’ and people who bought their property decades ago as a family home, not as an investment,” says Scott Clay, director of Together. “Asset-rich but cash-poor older homeowners could really struggle, as the tax could be the equivalent of a whole year’s state pension.”
The Valuation Office agency will determine the value of all properties potentially meeting 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 won’t be straight-forward, Leeming says. “As such, questions will be raised about assessment accuracy, how homes are assessed, and whether it could pose legal challenges. Taking time to get the revaluation process right before the 2028 implementation deadline will be critical to its success, where one legal challenge could open the floodgates to others.”
“High-priced homes are notoriously difficult to value because they lack consistency, and holding a property above a threshold can itself reduce its market value,” said Janet Siebrits, head of research at Ringley Group.
Unsurprisingly, the majority of £2m+ properties are in London and the surrounding South East so this is where the impact will be felt most profoundly. Data from real estate services company JLL shows that 68% of £2m+ sales in England took place in London, with the highest proportion in Kensington and Chelsea.
“With the threshold set at 2m, this measure directly affects London’s upper-middle classes – typically households with mortgages and limited resources. Their exodus can only stretch so far,” says Joe Eccles, founder of Eccord Buying Agency.
The new tax is also likely to lead to a “bunching up” of assets below the £2m threshold. “The £1.5m to £1.75m price range will see the most increased activity and capital value will see the most growth as business volumes increase,” says Mark Schneiderman, director of Arlington Residential.
It is also possible that there will be a rush of people wanting to sell affected homes before the tax takes effect in 2028.
“A mansion tax or similar annual fee on high-priced homes would almost certainly dampen demand above the threshold and drive down activity,” says Paul Drummond, CEO and co-founder of Swoople. “Sellers of £2m+ homes may feel pressure to adjust prices or move plans forward, while properties below that line become more attractive.”
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It is also likely that the future will see an increasing number of properties liable to tax.
“Over time, more properties will be drawn into the mansion tax trap, meaning the proportion of terraced houses, flats and semi-detached houses will increase, particularly in the capital,” says Tom Bill, head of UK housing research at Knight Frank. “The term ‘mansion tax’ may increasingly feel like a misnomer.”
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