Rachel Reeves revealed plans for a mansion tax in her Budget speech, but high-earners were largely spared the significant tax rises that many feared as the Chancellor revealed a range of smaller measures she hopes will plug the £20 billion ‘black hole’ in the country’s finances.
The new mansion tax – a de facto wealth tax, officially called the ‘high value council tax surcharge’ – will be levied on homes valued at £2 million or more.
In her statement, the Chancellor warned she intended to ‘make sure the wealthiest contribute the most’ without ‘returning to austerity’.
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The weeks before the budget were filled with a series of leaks and rumours that stoked concern among wealth advisers and some economists. Many are still reeling from the abolition of the non-dom regime and changes to inheritance tax and VAT on private school fees. However, despite this year’s febrile build-up, advisers to the wealthy told Spear’s they are ‘not too worried’ about the impact of this Budget.
‘After all the hype, there was remarkably little of substance,’ Payne Hicks Beach partner Robert Brodrick told Spear’s.
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Mansion tax
One of the most significant measures for UHNWs is the new high-value council tax surcharge. From 2028, homes in England worth over £2 million will be charged £2,500 a year, rising to £7,500 for properties valued above £5 million.
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Reeves said the measure was designed to address uneven council tax bills, noting that some modest homes such as a band D home in Darlington currently pay more than multi-million-pound properties in Mayfair.
The surcharge is expected to raise more than £400 million by 2031.
[See also: “Buy-to-leave”: The new property trend among London’s departing non-doms]
The so-called ‘mansion tax’ will ‘impact more than just the ultra-wealthy,’ Charles Russell Speechlys partner William Marriott told Spear’s. ‘Given average property prices in London and the South East, this tax will hit a broad swathe of homeowners, including many planning to downsize or pass wealth to future generations,’ he added.
However, the mansion tax will ‘not significantly impact behaviours or prompt UHNWs to sell houses and move abroad,’ predicted Brodrick.
‘[T]his Budget is probably the best outcome we were ever going to get,’ said Becky Fatemi, executive partner at Sotheby’s International Realty UK. ‘[T]hank goodness the mansion tax is not the horror story everyone spent months losing sleep over.’
However, Fatemi said ‘the Chancellor still missed a huge chance to tempt back the international wealth that has drifted away after higher stamp duty and the non-dom changes. That money powers London, and we need it back.’
Savills’ head of residential research Lucian Cook was cautiously optimistic. ‘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.
Cook added: ‘However unwelcome any tax increase, the certainty which this provides will allow buyers and sellers to formulate plans which have been put on hold over recent months. 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.’
‘Overall, any further impact on prices is relatively modest, although it is likely to be a further drag on the recovery of the prime market. However, it is likely to have a disproportionate impact on second home markets which are already dealing with an increased stamp duty surcharge and the doubling of council tax in most cases.’
Tax rates on dividends, property and savings
Reeves also announced that dividend tax rates will rise by two percentage points from April 2026, increasing the basic rate from 8.75 per cent to 10.75 per cent and the higher rate from 33.75 per cent to 35.75 per cent.
This ‘will affect anyone who has savings, shares or property,’ Payne Hicks Beach partner Rosamund McDowell told Spear’s.
Dawn Register of BDO echoed this view, adding that ‘this measure will hit HNWs of all ages, and unlike other announcements, that was not widely expected’.
Sarah Farrow of EY commented: ‘Given the exemptions for small amounts of saving income, this may fit with raising taxes from those with the broadest shoulders, but could act as a further deterrent for passive investment.’
Inheritance tax
On the inheritance tax front, ‘the Chancellor’s bark was worse than her bite,’ said Brodrick.
‘Those who have made lifetime gifts (or who plan to make them) can sleep more soundly knowing that they still only need to stay alive for 7 years, and there was some welcome news that the £1 million agricultural and business property exemption introduced in the last budget is to be made transferable between spouses.’
[See also: Britain’s farmers face grim new inheritance tax reality]
Brodrick also noted that there are several proposals, included in ‘supplementary documents’ published with the budget, that are aimed at tightening rules to prevent inheritance tax avoidance, such as treating UK agricultural property held through non-UK entities as UK-situated, similar to existing rules for residential property.
There is also an effort to encourage former non-doms to return by capping their inheritance tax liability at £5 million on pre-30 October 2024 excluded property trusts, but ‘unfortunately this is probably too little, too late,’ Brodrick noted.
[See also: A tax on the ultra-wealthy: Switzerland prepares for high-stakes referendum]
Income and exit taxes remain unchanged
Although there had been speculation that Reeves might introduce an exit tax, this has not materialised.
The Chancellor also avoided increasing income tax. However, she confirmed that personal tax thresholds will remain frozen from 2028-29 to 2030-31, continuing the phenomenon of ‘fiscal drag’ that has pulled people into higher tax brackets as their pay has risen as a result of inflation without providing additional purchasing power.
What now?
In its economic and fiscal outlook, which was controversially leaked ahead of the Budget, the OBR lifted its GDP growth outlook to 1.5 per cent for 2025, but lowered its medium-term forecast for productivity growth to 1 per cent. Reeves welcomed the stronger GDP growth figure, but said weaker productivity reflected the legacy of the previous government.
The head of wealth planning at LGT Wealth Management, Simon Allister, said, in effect, the key takeaway for high earners and UHNWs was to keep calm and carry on. ‘One of the most challenging aspects of this Budget for clients has been the sheer intensity of speculation in the lead-up,’ said Allister. ‘Now that we have a clearer sense of what to expect in the year ahead, I’ll continue to urge people to take their time, reflect and avoid the temptation to overhaul long-term plans in response to shorter-term politics.’
