A mansion tax will be introduced on homes worth more than £2m, Rachel Reeves confirmed, despite warnings from the property industry that the move was fraught with practical difficulties and would lead to a fire sale of high-end homes.
The Chancellor ploughed ahead with widely rumoured plans to apply a “high-value council tax surcharge” on all properties valued at over £2m, starting at £2,500 for homes between £2m and 2.5m up to £7,500 for homes worth £5m or more.
The Office for Budget Responsibility confirmed that the policy will not be introduced until 2028, while officials value homes that fall within the bracket, and that the charge will rise in line with inflation every year.
The policy will raise an estimated £400m in 2029-30, the OBR’s leaked document confirmed, with the revenues flowing to central government rather than local authorities.
Speaking in the House of Commons, Rachel Reeves told MPs the move was intended to address “a longstanding source of wealth inequality” in the UK.
“Currently, a Band D home in Darlington or Blackpool pays just under £2,400 in council tax, nearly £300 more than a £10m mansion in Mayfair,” she said.
“And so from 2028, 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.”
“This will be collected alongside council tax, levied on owners, and we will consult on options for support or deferral,” she added.
The decision comes despite a barrage of warnings from estate agents that the policy would lead to a flurry of valuation challenges and a major behavioural response.
Policy ‘may not’ generate predicted revenue
Simon Bashorun, head of advice at Rathbones Private Office, said: “The policy is fraught with practical challenges. Valuations will inevitably be contested, and annual assessments for unique, high-value homes are costly and prone to disputes. A surge in appeals could overwhelm government resources, making the system inefficient and expensive to administer.
“Economically, the tax risks creating price cliffs near the threshold, discouraging transactions and renovations. This could stifle housing development and even reduce property tax revenues – undermining the government’s objectives.”
Tom Bill, head of residential research at Knight Frank, added that the policy may not generate the revenue predicted by official forecasters.
“If opposition parties say they would scrap it, many homeowners will look at the opinion polls and wait it out,” he said. “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.”