New UK ‘mansion tax’ – How it works and how it could impact first-time buyers
In her Autumn Budget statement on Wednesday 26 November, Chancellor Rachel Reeves announced the introduction of a council tax surchage on homes worth more than £2 million.
This surcharge, which has been called a ‘mansion tax’, aims to bring more money into the Treasury by requiring those living in the most valuable properties to pay more for council tax based on the value of their home.
The Chancellor said this new surcharge is projected to raise over £400 million by 2031 and will be charged on less than the top 1% of properties.
The surcharge will come into effect from April 2028.
Let’s take a closer look at how the new ‘mansion tax’ works and how it may impact the housing market.
How the ‘mansion tax’ works
‘Mansion tax’, or the High Value Council Tax Surcharge, will only apply to homes in England and will be paid in addition to council tax.
Homes valued over £2 million will pay an annual surcharge, with the amount they are due based on the where they fall within specific valuation bands.
The annual surcharge due by the property owner is determined by the value of their home, as described in the table below:
| House Value | Annual Surcharge |
|---|---|
| £2.0 million – £2.5 million | £2,500 |
| £2.5 million – £3.5 million | £3,500 |
| £3.5 million – £5.0 million | £5,000 |
| £5+ million | £7,500 |
It is important to note that unlike standard council tax, this ‘mansion tax’ will be paid by the owner of the property, and not the occupier.
To determine the value of a home and which bracket it falls into, the government has said it will conduct a ‘targeted valuation exercise’ every five years to determine the value of a property and which surcharge band applies to it.
1% of UK homes priced above £2 million
When Reeves announced the introduction of a ‘mansion tax’, she said the surcharge is expected to apply to around 100,000 homes.
The majority of the homes that will be affected by this surcharge are in London and South East England.
Data from online property platform Rightmove shows that less than 0.5% of all homes sales agreed this year have been for properties with an asking price of over £2 million.
It also said that around 1% of homes for sale on its platform are priced above this threshold.
The market may already have been reacting to speculation over the introduction of a ‘mansion tax’, as Rightmove’s data shows that sales agreed for homes above the £2-million threshold have declined by 13% year-on-year.
Trickle-down effects could hurt first-time buyers
Rightmove property expert Colleen Babcock said the introduction of this surcharge will cause a ‘trickle-down’ effect for the rest of the market, affecting everyone looking to buy a home.
“The property market needs less taxation not more, to encourage and enable movement. Today’s announcement of a Mansion Tax could lead to some distortion at the top end of the market, particularly as the implementation date draws closer. It may also have an impact across the rest of the market.”
“Importantly, while this likely very complex tax aims to target the £2-million price sector, there is an inevitable trickle-down effect for the rest of the market,” Babcock said.
“Even though our data shows that less than 0.5% of sales would be directly affected, a slower market can affect all types of movers, from first-time buyers to key workers and families.”
Babcock added that there will always be a market for premium properties in especially popular locations, but said the ‘mansion tax’ will stifle movement and growth in the housing market.
