The UK’s new ‘mansion tax’ is set to hit homeowners in London hard, particularly for middle-class Londoners who have seen the price of their property balloon in the last two decades.
Chancellor Rachel Reeves introduced a new high-value council tax surcharge for owners of properties valued at over £2m in her second Budget on Wednesday.
From April 2028, owners of properties above this threshold will be liable for a recurring annual charge, which will be added to existing council tax payments.
There will be four price bands, with the surcharge rising from £2,500 for a property valued between £2m and £2.5m to £7,500 for a property valued above £5m.
The measure is estimated to raise £0.4bn in 2029-30, with the revenue flowing to central government rather than remaining with local government.
Jo Eccles, founder and managing director of prime central London buying agency Eccord, said the policy will “directly impact London’s upper-middle classes… their outgoings can only stretch so far.”
‘A tax on ordinary success’
James Evans, CEO of leading London real estate agent Douglas and Gordon, said the policy is unfair to Londoners.
Of the 1,434 homes sold over £2m across England and Wales this year, 66 per cent (940 ) were in London. The 940 London homes sold above the £2m threshold also equate to 2.3 per cent of all homes sold in the capital so far this year, compared with just 0.4 per cent nationally, according to Enness Global.
This means London’s homeowners would shoulder the vast majority of any mansion tax revenue, with the estimated total annual charge on just those homes sold over £2m so far this year totalling £15.8m.
“This Autumn Budget is nothing short of an assault on London’s property market,” Evans said.
“While the devil will be in the detail of the valuation process itself, it will hit ordinary home-owning Londoners and those in the South-East of England hard… I see this as a tax on ordinary success.”
‘Spanner in the works’ for property
The property market, always sensitive to sentiment, has stalled this year amid uncertainty over which taxes Reeves might raise in her budget.
While this policy won’t have as much of an effect as an annual property tax based on the value of a home or a sales tax, it will still be a tough pill to swallow for the middle-to-upper end of the market.
“The new policy throws a spanner into the works of the housing market for not much in return. Like other announcements… it feels primarily designed to keep backbenchers happy and ensure the near-term survival of the Chancellor and the Prime Minister,” Tom Bill, head of UK residential research at Knight Frank, said.
“We need to remember that people living in high-value homes aren’t always cash-rich.”
“Many are stretched, still paying big mortgages, and have simply ridden a wave of rising prices. A mansion tax would freeze investment in homes over £1m overnight, as owners hold back on improvements to avoid being pushed over a threshold the government will almost certainly freeze,” Bill added.
Madeline Gowett, tax partner at law firm Travers Smith, added that the new ‘mansion tax’ may “tick the fairness box by supposedly targeting those with broadest shoulders”, but it is “far from perfect and without structural reform this Budget misses the chance to modernise a property tax system that is outdated, deficient, and overly complicated”.