Chancellor Rachel Reeves is preparing to introduce a controversial mansion tax in next week's Budget that property experts warn could severely impact housing markets in London, Manchester and Edinburgh.
Budget Proposals Target High-Value Properties
The Chancellor has instructed Labour MPs to promote the coming mansion tax as a measure that primarily affects wealthier individuals while sparing working people. According to reports, Reeves is considering a council tax surcharge on expensive homes as her preferred approach.
Under the proposed system, properties valued above a specific threshold - potentially £1.5 million - would face an additional 1 percent tax on the value exceeding that level. This would mean a £2 million home would pay an extra £5,000 annually on top of existing council tax bills.
Sean Dury, a senior tax partner at audit advisory firm Blick Rothenberg, told City AM that a mansion tax would disproportionately affect London properties where values have surged since the 1991 council tax assessments. He attributed this to housing strategy failures rather than property quality improvements.
Expert Warnings of Market Stagnation
Tax specialists have raised serious concerns about the potential consequences of the mansion tax. Chris Ball, CEO of Hoxton Wealth, stated: "It's going to lead to a stagnant property market again. Cities like London, Manchester and Edinburgh could be hit particularly hard."
The tax risks removing money from the pockets of the very people who can afford to purchase high-value properties, potentially slowing sales of upmarket homes across these key cities.
Sean Bannister, tax advisor at Edwin Coe, emphasised that the current property tax regime is already stifling movement across the market. He explained it prevents people from achieving various life goals, including home ownership, relocation for career opportunities, family expansion, or downsizing to provide financial support to younger generations.
Alternative Approaches and Campaigner Demands
While the council tax surcharge appears to be the favoured option, other potential forms of mansion tax include introducing a new higher council tax band or doubling the rate for properties in the two highest existing bands (G and H).
The Chancellor could also utilise capital gains tax by removing the primary residence exemption for properties valued above a specific figure, likely set at £1.5 million.
Campaign groups are advocating for more radical reform. Fairer Share is pushing the Government to scrap council tax and stamp duty entirely, replacing them with a proportional property tax based on current home values.
Andrew Dixon, founder and chair of the campaign, stated: "The current council tax system is outdated, unfair, and leaves millions of households paying far more than they should relative to the value of their homes."
According to economists at Public First, 41 percent of homes in bands G and H are pensioner-owned, raising concerns that targeting these bands could create a "granny tax" disproportionately affecting elderly Britons.
The proposed mansion tax comes amid revelations that the UK is experiencing a "brain drain" three times larger than previously estimated, with London's super-rich already considering leaving the country altogether.
