The Chancellor, Rachel Reeves, has announced the introduction of a mansion tax on residential properties worth more than £2 million.
The High Value Council Tax Surcharge, dubbed the ‘mansion tax’, will place an annual levy between £2,500 and £7,500 on high-value homes. But what exactly is the policy and should ultra-high-net-worth individuals be worried?
Here is everything you need to know about how it will work in practice.
What is the new ‘mansion tax’ and when will it come into effect?
The new mansion tax, revealed in Reeves’ 2025 Budget, will come into effect in April 2028. Home owners will have to pay an annual charge between £2,500 and £7,500, depending on which valuation band a property falls into. They payment will be added to existing council tax bills.
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The revenue will be passed to central government, but used to support local services.
[See also: How the UK 2025 Budget will affect your wealth]
How do I know if my property is eligible?
Property values will not be based on the price paid at purchase. New valuations will be carried out by the Valuation Office Agency, reflecting each property’s value in 2026. These values will then be uprated annually by the Consumer Price Index (CPI) measure of inflation.
Homes worth more than £2 million will be placed into one of four valuation bands. Owners of properties valued between £2 million and £2.5 million will pay £2,500 a year, while those valued at £5 million or more will pay £7,500. The bands at which homes become liable for the surcharge will rise each year in line with inflation.
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Although the exact details for the middle bands have not yet been published, the Treasury expects the measure to apply to fewer than one per cent of homes in England. More than 140,000 homes will be affected, according to the Telegraph. Most of the affected properties are in London and the South East, with some 82 per cent of recent £2 million-plus home sales taking place in this part of the country.
When will the consultation take place?
Not all details have been finalised and the government will launch a consultation on the measures. It has not yet revealed how it will determine which properties to revalue, although reports suggest the exercise may focus on the 2.4 million homes currently in the top three council tax bands (F, G and H).
There have been previous suggestions that homeowners might be able to defer the surcharge until they move or die, in order to avoid forcing sales. But no deferral scheme has been confirmed.
What do the experts say?
Robert Brodrick, chair of the management board at Payne Hicks Beach, said UHNWs have nothing to lose sleep over.
‘Mansion tax is not going to significantly impact behaviours or prompt people to sell houses and move abroad. In many ways it’s long overdue. It’s certainly ridiculous that people in Mayfair should pay less council tax,’ said Brodrick.
Savills head of residential research Lucian Cook echoed the view that the surcharge is far less severe than many had feared.
‘The introduction of an annual tax surcharge for properties worth over £2 million, at levels somewhat lower than many will have feared, is probably the least worst outcome for owners of prime property,’ he said.
The uncertainty ahead of the Budget may have already affected the market. Rightmove revealed earlier this week that sales of £2 million-plus homes were down 13 per cent year on year in the run-up to the announcement.
But the certainty now provided by the announcement, combined with the relatively modest level of the surcharge, means the slowdown is not expected to last.
‘The certainty which this provides will allow buyers and sellers to formulate plans which have been put on hold over recent months,’ said Cook. ‘This is likely to underpin a short-term pick up in market activity, especially given the breathing space offered by a delay in implementation whilst the valuation exercise is conducted.’
He also noted that at the very top end of the market, the policy is not significant enough to alter supply and demand dynamics in central London.
Becky Fatemi, executive partner at Sotheby’s International Realty UK and Spear’s’ 2025 Woman of the Year, also welcomed the relative restraint of the policy.
‘Making it banded rather than a percentage of the entire property is the only sensible part of today’s announcement,’ she said. Fatemi warned, however, that the burden will fall hardest on people living in ‘perfectly normal London houses’ that happen to be worth more than £2 million, rather than on the ultra-rich.
Not all experts were reassured. Writing underneath a LinkedIn post by his colleague Lucian Cook, Edmund Kornicki, associate director in the property valuation division at Savills, said: ‘This is the end of freehold ownership. In effect, it means that above a nil rate threshold, house owners must now pay the state simply to continue their ownership. One could regard it as a return to the feudal system.’
What impact will this have on the housing market?
The Office for Budget Responsibility (OBR) expects the measure to start being reflected in property prices, with ‘price bunching’ occurring just below the band thresholds. This means properties valued just over £2 million may be pushed slightly lower to avoid falling into a higher taxable band, reducing the number of homes in scope.
The surcharge is expected to raise around £400 million a year by 2029-30, by the OBR’s estimate – though this carries a high degree of uncertainty since new valuations, market behaviour and incomplete policy details mean the final amount raised could differ significantly from current forecasts.
