Thousands of homeowners in England with properties valued at over £2 million are poised to face a new surcharge of at least £2,500 starting in 2028, in what is being widely referred to as a “mansion tax.”
This annual levy will be applied in addition to existing council tax rates, with the amount increasing across four distinct property value bands.
The lowest band will encompass properties valued between £2 million and £2.5 million, while the highest charge, set at £7,500, will apply to homes valued at £5 million or more. A significant portion of the affected properties are located in London.
According to projections from the Office for Budget Responsibility (OBR), this measure is expected to generate approximately £400 million annually by 2029-2030.
The High Value Council Tax Surcharge on properties valued above £2 million forms part of a broader set of tax increases incorporated into Chancellor Rachel Reeves’s Budget, designed to meet her established financial targets.
In announcing the change, the chancellor stated her intent to take “further steps to address a longstanding source of wealth inequality in our country.”
However, the Institute for Fiscal Studies (IFS) think tank has voiced criticism of the change, arguing that it does not go far enough.
The IFS previously stated that a revaluation of council tax bands is “long overdue”.
In response to the Budget, the IFS commented, “There’s a reasonable case for levying more high-value homes, but the design of this tax leaves much to be desired.”
The Treasury anticipates that the measure will affect less than 1% of properties in England.
Estate agent Savills, reacting to the announcement, described it as “probably the least worst outcome for owners of prime property.”
They stated that the impact on the housing market would be “much less severe” than if an “open-ended mansion tax” had been implemented.
Savills believes that certainty surrounding the issue is likely to stimulate activity in the housing market and, in the long term, encourage older homeowners to downsize.
The Local Government Association has urged the government to collaborate with regional councils to address “practical concerns about how it would work.”
Cllr Pete Marland, chair of the association’s resources committee, emphasized that additional funding generated through council tax should be allocated to local authorities, adding, “we wait to see how government intends to use this funding to specifically support local services.”
“Council tax needs comprehensive, fair reform and local government is ready to work with government on this,” he said.
“This surcharge should not create confusion over accountability, with councils likely to be blamed for a charge that is not theirs.”
While the charge is applied on top of existing council tax, the revenue will be directed to the Treasury rather than local authorities.
In its assessment of the tax, the OBR predicted that it would begin to influence property prices, resulting in “price bunching to just below each band boundary.”
This refers to the incentive to value properties just below the threshold at which they become subject to the charge, a factor that “reduces the estimated yield by reducing the number of properties in scope of the measure.”
The threshold at which properties become liable for the charge will increase in line with inflation.
The OBR noted in its assessment that the costings for the new surcharge carry a “high” degree of uncertainty.
The government will now conduct a consultation on potential reliefs and exemptions, including those for individuals required to reside in high-value properties due to their occupation.
Properties will be assessed based on 2026 valuations provided by the government’s Valuations Office Agency.
While council tax bands will remain unchanged, the government will review properties in the highest bands—F, G, and H—to determine if their values exceed £2 million.
Calls for a comprehensive reform of the council tax system have been made, given that it is currently based on property values from 1991.
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