Property and tax experts have raised questions over the workings and consequences of the ‘mansion tax’ introduced by the Chancellor, Rachel Reeves, in Wednesday’s Budget.
The newly introduced levy will mean homeowners with properties worth £2 million or more will have to pay an annual council tax surcharge of at least £2,500 per year – rising to £7,500 per year for homes worth £5 million or more.
But advisers to high-net-worth individuals and owners of high-value homes have expressed concerns about the incoming legislation.
There is a question mark over how homes will be valued and the cost of the process. ‘They have got to value at least 200,000 homes, potentially even 300,000. Who on earth is going to do this?’ said Robert Barham, a partner at Forster’s property law division. ‘It is a bonanza for valuers, because the Valuation Office Agency will not be able to cope with this volume of work, and it will cost a hell of a lot to do.’
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‘If they had just slapped the tax onto the top rate of council tax payers, setting up this scheme would not have cost the government anything,’ Barnham added.
‘There will be lots of appeals, I am sure, especially with people whose homes are valued at £2.5 million. The cost of responding to these challenges could impact the overall amount of money this scheme brings in,’ he said.
Valuations will be carried out by the Valuation Office Agency, a department of HM Revenue & Customs which values properties for tax and benefits purposes in England and Wales. The value will be based on a property’s worth in 2026, as opposed to the figure for council tax, which is based on a property’s value in 1991 and 2003 for England and Wales respectively.
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Barnham’s sentiment was echoed by Alex Isidro, Managing Director at United Kingdom Sotheby’s International Realty.
‘There will have to be an awful lot of work that goes into this valuation process,’ he said.
Those with homes worth between £2 million and £2.5 million will pay £2,500 a year and those valued between £2.5 million and £3 million will be taxed £3,500 per annum. Higher up the scale, homes between £3.5 million and £5 million will be taxed £5,000 annually, and at the top, people with properties valued at £5 million or more will be taxed £7,500.
The surcharge is expected to raise around £400 million a year by 2029-30, according to an estimate from the Office for Budget Responsibility (OBR).
[See also: How the UK 2025 Budget will affect your wealth]
Tax expert Dan Neidle estimated the tax could wipe somewhere between £150k and £375k off the value of homes worth £5 million or more.
‘The new mansion tax will be most impactful for owners of properties between £2m-2.5m bracket,’ said Alistair Myles, Partner at Ribet Myles Family Law. ‘This is likely to reduce the value of some people’s homes, and make it more difficult to sell.’
The new rules could be particularly problematic for couples selling a home in order to split marital assets in a divorce, said Myles. ‘This could leave families being stuck in limbo, and matrimonial settlements being adversely affected by the house not achieving the anticipated price for the home.’
However, several property experts who spoke to Spear’s emphasised that the effects of the mansion tax were likely to be minimal.
For a property at the bottom of the threshold, the tax equates to an annual charge of 0.125 per cent of their property’s value. Meanwhile, for a super-prime property worth £20 million, the tax would equate to less than 0.04 per cent of its overall value.
When compared to some other costs of running a super-prime property, this is a comparatively small expense, argued property valuations expert Justin Mason of Mason Valuation Consultants.
‘The relative charge of a council tax surcharge or ‘mansion tax’ is a small percentage of the running costs of a larger home in prime central London and not particularly large when compared with the service charge on a luxury apartment in a branded scheme,’ Mason said. ‘It would be surprising if this were to affect the marketability or value of property except in cases where vendors are asset-rich and cash-poor.’
The tax, while providing uncertainty over potential house valuations on a tax level, will not affect the buying and selling values of properties, according to Alex Isidro of Sotheby’s.
‘I don’t expect this mansion tax to change the inherent value of super-prime property,’ he said. ‘The value of the tax itself is not enough to change the market sentiment.’
‘I think people are unlikely to try and find ways of avoiding paying this tax,’ Isidro added.
‘This was good news, really,’ said Hannah Catt, a lawyer at Charles Russell Speechlys. ‘There has been talk about some sort of mansion tax since Labour got in government and this is about as good as we can get in my opinion.’
‘For HNWs and UHNWs, this tax is probably going to have very little effect on what they plan to do with their properties.’
