Rachel Reeves Mansion Tax: How Could It Affect You?
Estimated reading time 6 minutes
When Rachel Reeves presented her budget to the House of Commons in November, a collective breath was held as homeowners, business owners, the unemployed and those on sickness benefits waited to see how their lives might change for better or for worse.
One of the most controversial, and in some circles, welcome announcements was that of the mansion tax. A tax levied on homes worth more than £2million that’s expected to raise as much as £0.4bn in 2029/30. Labelled as “mansion tax”, its real name is the High Value Council Tax Surcharge. It’ll cost homeowners £2,500 to £7,500 per year, depending on the property value, and will start being collected alongside council tax from April 2028.
What is mansion tax?
You can think of the mansion tax as an additional charge bolted onto council tax for homeowners with property worth more than £2 million. There has been some argument over whether it is fair, with those owning such large houses feeling penalised and those who don’t live in such extravagant surroundings stating that the amount owed is justified for those who may live more comfortably than the majority of us.
How much is mansion tax?
The amount of mansion tax homeowners will be expected to pay will depend on the value of their property. It only applies to homes valued at more than £2 million in 2026 and will become payable from 2028.
It works on a sliding scale with homes valued between £2.0m and £2.5m charged £2,500 per year, and those worth more than £5 million owing the maximum amount of £7,500.
The charges will apply as shown below:
| Property Value(£m) | Mansion Tax |
| £2.0-£2.5 | £2,500 |
| £2.5-£3.5 | £3,500 |
| £3.5-£5.0 | £5,000 |
| £5.0+ | £7,500 |
How many properties in the UK will be affected by the mansion tax?
It’s not as many as some media outlets may have you believe. It is estimated that less than 1% of the properties in England will be valued above the £2 million trigger point. Based on the latest census data (2021), even if 1% were liable, it could only apply to about 264,000 homes out of the 26 million households in the country. However, many reports state that the number of properties affected will be closer to 150,000-160,000. The majority are in London and the southeast of England.
The figures would have been considerably higher as the initial plans for the mansion tax would have seen the charge applied to homes worth more than £1.5 million. This would have seen over 300,000 homes facing the new tax.
Is the mansion tax added to my council tax?
Sort of, it’s charged on top of the council tax, but where council tax is collected and divided across local authority departments, the mansion tax will go directly to the Treasury.
Will the mansion tax apply to council houses?
This may seem a strange question, as not many people expect council houses to be worth such large sums. However, an analysis by The Telegraph found that more than 110 social housing properties (whether currently or formerly used as social housing) sold for more than £2 million in 2021. In a move that may have surprised some and been expected by others, the government announced that council houses that meet the mansion tax criteria will be exempt from the additional expense.
Is the mansion tax fair when there is such regional disparity in house prices?
This is one area that has raised lots of concern. A quick scan on Rightmove found several one-bedroom flats in London for £2 million, but in Liverpool and other areas north of the capital, there were many considerably larger properties at prices that fall short of the mansion tax threshold. A seven-bedroom, grade two listed detached property with a fully equipped gym, sauna and wet room comes in at £1.75 million and therefore avoids the mansion tax, whereas the London property will be affected by it.
How does the mansion tax impact second properties?
If you own more than one property, and it exceeds the £2 million threshold, you’ll owe the extra tax on that as well as on your other property, if that is also valued at more than £2 million.
Will the mansion tax have an impact on house prices?
In some parts of the property market, it might. Those who own properties liable for the tax may start to see their properties sell for less, as buyers may be perturbed by the new tax they will encounter. For the wider market, it is not expected to make a significant difference, if any at all. However, with revaluations taking place every five years and the property market typically seeing increases in house prices, more homes could gradually fall into the mansion tax bracket. This could lead to more and more people selling for less to make their homes more appealing to buyers.
Some people may well sell to avoid paying a mansion tax, but downsizing could come with its own challenges. Selling your home to buy one that falls short of the mansion tax threshold could still see stamp duty of more than £90,000 applied.
How to avoid mansion tax
Aside from selling your house or avoiding value-boosting renovations until after the 2026 valuations take place, there might be a few strategies homeowners can employ to navigate the tax. Deferral schemes for those who may be deemed asset-rich but cash poor may come into effect. In these cases, the tax isn’t payable until death or when the property is sold. This could be a beneficial route initially, but questions remain over its impact on inheritance and liquidity. Furthermore, additional costs may be accrued, making the overall bill much higher than if it were paid annually.
Another option is to appeal the valuation. Properties will be valued in 2026, and there is nothing to say that some valuations may be a little aggressive. A home worth £1.9 million would escape the tax, but a new valuation that judges the property to be worth just £100,000 more will see it become liable for the tax. In contrast, some homes valued in excess of £2 million may be valued less and remove the homeowner from the tax liability.
If you are fearful that your home may be hit by the mansion tax and want a quick sale, speak to our team. At Bettermove, we ensure you sell your house fast. We either buy it ourselves or present it to a network of cash house buyers. With proof of funds available and your legal costs covered, we offer a streamlined route to sale that enables you to move forward with your property plans on your terms.
