The government has announced a new 1% annual charge on homes valued above £2 million.
Leaked Budget documents show that Rachel Reeves will introduce a high value council tax surcharge on properties worth more than £2m, with the government aiming to raise around £400-£450 million from the levy by 2031.
From April 2028, owners of properties identified as being valued at over £2 million by the Valuation Office will be liable for a recurring annual charge which will be additional to existing council tax liability.
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. This measure is estimated to raise £0.4 billion in 2029-30.
Speaking during today's Budget, Reeves said: "I am introducing the high value council tax surcharge in England, an annual £2,500 charge for properties worth more than £2m, rising to £7,500 for properties worth more than £5m."
She stressed that the change would affect "less than the top 1% of properties", however, industry experts raised concerns about the plans.
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.
Chris Ball, CEO of financial advisory firm Hoxton Wealth, commented: "In terms of a ‘mansion tax’, the problem is defining what a mansion is. The price of a mansion in one area could get you flat in London that is no bigger than a box because of where it's located. So there needs to be very clear definitions of what that means and how are you going to tax that? Is it going to be linked to council tax rates that you're going to have to pay an increased amount, because, if so, that's not the direct taxation the government wants to get. And how could you enforce it? In the US, they have property taxes that they must pay every single year. Perhaps the government has looked at their playbook and thought, that's a clever idea for here. But, for a lot of people, especially the elderly, who are reliant on a state pension and maybe some savings, they may live in a property that could be considered a mansion.
"It's a double-edged sword, though, because for the people that are looking to sell these properties, you're kind of taxing the people that are trying to achieve the ability to buy those properties. So, are you going after the people with the broadest shoulders, and, if so, who's then going to purchase these properties? Otherwise, it's going to lead to a stagnant property market again."
Paula Higgins, CEO of HomeOwners Alliance, commented: “There must be a long lead-in time. Homes are people’s security, often their pension. Many people have prioritised owning a home over all else and are asset-rich and income-poor; they would struggle to afford a sudden new annual charge. A ‘mansion tax’ also hits ordinary family homes in London and the South East far more than the rest of the UK.
“On proposals to hike council tax for bands F, G and H, homeowners feel like sitting ducks. Homeowners in those bands are already paying significant amounts, and any further tax hikes risk punishing people whose incomes haven’t kept pace with property values, hitting families who are asset-rich but cash-poor.
“Most importantly, any attempt to raise council tax or introduce a mansion tax cannot be fair without a full, nationwide revaluation of homes. Council tax bands are still based on 1991 values. Trying to bolt new charges onto a 34-year-old valuation system risks huge distortions — punishing some households purely because their area has risen in value or they have invested in their home, while others with equally valuable homes escape. If the government wants fairness, it must first face up to the need to revalue the vast majority of the housing stock.”
