Chancellor Rachel Reeves has launched a new 'mansion tax' targeting high-value residential properties in England, a move she states will address a "long-standing source of wealth inequality." Announced in the November 2025 budget, the policy will see homeowners of properties valued above £2 million paying an annual surcharge on top of their existing council tax bills.
What Are The New Mansion Tax Bands?
The new levy, officially termed a "high value council tax surcharge," is scheduled to take effect from 2028. It will be structured into four distinct bands, with property values based on 2026 prices. The government has confirmed the lowest and highest bands, while the two middle bands remain undisclosed for now.
The confirmed charges are as follows:
- Properties valued between £2 million and £2.5 million will pay an extra £2,500 per year.
- Properties valued at £5 million or more will face the top-tier charge of £7,500 annually.
The chancellor confirmed that these surcharge amounts will be uprated every year in line with the Consumer Price Index (CPI) measure of inflation.
Who Will Be Affected and How Will It Work?
This new tax is projected to affect fewer than 1% of all properties in England. The estimated annual revenue for the Treasury is £400 million, though the Office for Budget Responsibility (OBR) has expressed high uncertainty around this figure and may adjust it following a public consultation.
A key distinction is that the revenue will flow directly to central government, rather than being allocated to local councils like standard council tax. Ms Reeves emphasised that support mechanisms, including a potential deferral scheme for those who are asset-rich but cash-poor, will be explored in the upcoming consultation. This is particularly relevant for individuals who purchased homes decades ago that have since skyrocketed in value, especially in areas like London and the Southeast.
Market Reaction and Potential Consequences
Financial experts have raised immediate concerns about the policy's impact. Paul Johnson, former director of the Institute for Fiscal Studies, warned that the banded structure could create "big spikes at specific valuations" as homeowners might seek to position their properties just below a tax threshold.
Rob Hillock of Broadstone noted that the tax "will likely prompt many homeowners to get an up-to-date valuation" and could lead to market distortions, including incentives to downsize. Mark Campbell from Isio highlighted a "flawed assumption" that homeowners necessarily have the liquid wealth to pay the new charge, potentially penalising those in expensive homes without high incomes. He also cautioned that it could send a negative signal to international investors and entrepreneurs about the UK's tax environment.
With the consultation pending, the final design of the mansion tax and its true economic effect remain to be seen, setting the stage for significant debate in the property and financial sectors.
