Introduction to the Mansion Tax

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. 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.”

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.

How the Mansion Tax Will Work

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).

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

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.

Reaction to the Mansion Tax

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.

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.

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.

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.

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 & Property, reveals 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.

Conclusion

The introduction of the mansion tax has sparked debate among experts, with some arguing that it will depress sales on good sized family homes and others claiming it will have little impact on the overall housing market. However, one thing is clear: the price gulf between apartments and houses continues to widen, making it difficult for young families to upsize from their first apartment to a family-sized home.

Frequently Asked Questions

Q: What is the mansion tax?

A: The mansion tax is a new annual surcharge on properties worth more than £2 million, introduced by Chancellor Rachel Reeves in the 2028 Budget.

Q: How will the mansion tax work?

A: The tax will be charged on properties worth more than £2 million, with four price bands and rates ranging from £2,500 to £7,500 per year.

Q: Who will be affected by the mansion tax?

A: Homeowners with properties valued at £2 million or higher will be liable for the annual stamp duty surcharge, which is estimated to affect less than 1% of properties in the UK.

Q: What are the concerns about the mansion tax?

A: Experts are concerned that the tax will depress sales on good sized family homes, lower asking prices around the £2 million mark, and have a negative impact on the overall housing market.