Owners of properties worth more than £2 million will be hit by a new “mansion tax” that will raise the government £400 million by 2031, the Chancellor has confirmed.
From April 2028, the levy will take the form of a municipal tax surcharge on homes that have been deemed by the Valuation Office to be worth more than the threshold based on 2026 prices.
In contrast to the regular municipal tax, the revenues from this additional tax are calculated will go to the central government.
There will be four price ranges, with costs rising from £2,500 for a property valued between £2 and £2.5 million, to £7,500 for a property valued in the upper range of £5 million or more.
The rates will increase every year in line with the Consumer Price Index.
Speaking in the House of Commons today, after documents from the Office for Budget Responsibility were previously leaked, Rachel Reeves said: “I am introducing the high council tax surcharge in England…
“This will be collected in addition to the council tax charged on owners, and we will discuss options for support or deferment.
“This new surcharge will raise over £400 million by 2031 and will be levied on less than the top 1% of properties.”
Lucian Cook, head of residential research at Savills, said: ‘After what must have been the most protracted exercise in kite-flying in the run-up to a Budget, the introduction of an annual tax surcharge on properties worth more than £2 million, at a level slightly lower than many will have feared, is probably the least worst outcome for prime property owners.
“And because the uncertainty in the run-up to the budget has already had an impact on prices, the impact on the market will be much less severe than in the case of an unlimited mansion tax.
“As unwelcome as a tax increase is, the certainty it provides will allow buyers and sellers to formulate plans that have been put on hold in recent months.
“This is likely to support a short-term recovery in market activity, especially given the breathing space provided by a delay in implementation while the valuation exercise is carried out.
“In the longer term, the measures are likely to provide a slightly greater incentive for older homeowners to downsize and, in some cases, for owners of expensive, heavily mortgaged homes to move to a less valuable property, driving some of the demand out of London into the commuter zone.
“However, this impact will be tempered by the ability to defer any costs until sale or death, which should prevent a rush of shares into the market.”
Evelyn Partners financial planning partner David Little says: “Owners of properties worth between £1.5 million and £2 million will breathe a sigh of relief that they have avoided this so-called mansion tax.
“No doubt the Treasury realized that at £1.5 million there would be a significant backlash from Labor voters with such properties in the more affluent parts of the country, especially the south-east of England.
“Now it appears the burden will fall on those with the most highly valued properties, many of which will be in London.
“But with the measure not coming into effect until 2028, there is still plenty of time for the law of unintended consequences to come into effect.
“There could be widespread implications for the property market in the south east of England, where transactions could rise before the surcharge comes into effect and sellers look to drive down the price of properties below the threshold.”