Budget 2025 - £400 million 'mansion tax' slapped on high-value homes

The Chancellor Rachel Reeves in her Budget speech today announced a levy on high-value homes, via a new high value council tax surcharge. From April 2028, owners of properties identified as being valued at over £2million by the Valuation Office (in 2026 prices) 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.

The revenues will flow to central government rather than remain with local government, as is the case for standard council tax.

David Little, Partner in financial planning at wealth management firm Evelyn Partners, comments:

‘Owners of properties valued between £1.5million and £2million will be breathing a sigh of relief that they have swerved this so-called mansion tax. Doubtless the Treasury realised that at £1.5million there would be a significant backlash from Labour voters with such properties in more affluent parts of the country, especially the South East of England.

‘Now it seems the burden will fall on those with the highest-valued properties, many of which will be in London. But with the measure not expected to come in until 2028, there is plenty of time for the law of unintended consequences to take effect.

‘There could be widespread implications for the property market in the South East of England, where transactions could surge before the surcharge kicks in and sellers try to price properties below the threshold.

'The cynic could argue that it is really just a sop to those Labour backbenchers and trade unionists who had been calling for a wealth tax. As with a broader wealth tax though, property taxes are fraught with difficulties, not least around the valuation of assets. There will no doubt be a host of objections from property owners, not just around the £2m mark but across those three bands.

‘To see this you only have to look at the story of the “window tax”. For over 150 years, until the mid-19th Century, an effort to levy a wealth tax involved judging the value properties according to the number of windows they had - even where large tenements had multiple occupants. So this led to many landlords and wealthy people bricking up windows to bring their property below the window tax threshold.
‘Bricked-up window-spaces gave birth to the term “daylight robbery”, and are still visible across London today.

'All this demonstrates the administrative difficulty of valuing properties, of setting wealth tax levels, and also shows the unexpected and extreme lengths that people will go to mitigate tax, especially where it is regarded as unfair or arbitrary.

‘It is very often the case that behavioural responses mean tax rises result in less revenue than expected, while causing other sometimes unexpected market distortions, and we suspect that could well be the case here.’