'Good news, let’s make the £20 million deal happen': The Mansion Tax that turned out to be 'the least worst outcome for prime property', and the places that will be hit

'Let's just say the valuation now starts with a two,' said an acquaintance of mine rather smugly a few months ago, after giving her Surrey home a bit of a glow up.

I doubt she'll be quite so pleased with herself any more. Rachel Reeves revealed the worst-kept secret in property on Wednesday when announcing the new 'Mansion Tax' as part of her budget. Set to come in to force from April 2028, it's effectively an extension of Council Tax that will add between £2,500 and £7,500 to the annual amount payable by those whose homes are valued at over £2 million as part of a major revaluation project which will be carried out in 2026.

While the High Value Council Tax Surcharge has been dubbed a Mansion Tax, it's nothing to do with the size of the property. Instead it'll largely be a tax on sizeable family homes and swish apartments in London's better postcodes, places where the house prices are almost double the national average.

And London really will bear the brunt of this: 66.6 per cent of £2m plus sales in England are in Greater London, according to data from Savills. The highest proportion are in Kensington and Chelsea, followed by Westminster then Camden, which gives you an indication of where the clusters of multi-million-pound homes are in the capital.

As with any rise in property tax it has, unsurprisingly, been met with opposition from the estate agent sector. 'In London, this is a terrace tax, not a mansion tax,' says Dominic Agace, head of Winkworth — and he's not wrong. This £2.5 million example, a four-bedroom terrace in Hackney, has been plushly refurbished inside, but it's still a home on busy main road, with a small garden.

It won't just be London that's affected: the Home Counties and the wider country house market will be hit too.

Almost a fifth of deals above the £2 million threshold over the last 12 months have occurred outside London, but within the South East. The remainder are heavily concentrated in Eastern England — particularly around Cambridge and Norfolk, with a 5.2 per cent share of these deals. The lion's share of what's left are homes in the South-West, which had 4.6 per cent of £2 million-plus sales.

Lucian Cook, head of residential research at Savills, puts forward a balanced view: '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 prime property.'

Rather than be worried, in other words, many potential buyers are now simply relieved that the tax isn't an open-ended one per cent, as originally expected, but instead capped at £7,500 a year even for the most expensive properties.

'The first message I received from a client was one of relief: "Good news, let’s get going",' says Will Watson, head of The Buying Solution. 'The second was ‘Let’s make that deal happen now".'

The deal in question, Will adds, was for a property worth over £20 million. 'Already, the budget finally brings more clarity and it seems it has the potential to get things moving again.'

How will the new Mansion Tax work in practice?

A major reassessment of properties in Council Tax bands F, G and H will be carried out in the next couple of years, four new bands created, starting at £2-2.5 million and going up to £5 million-plus.

From April 2028, homeowners in the lowest new band will be required to pay an extra £2,500 a year in Council Tax; at the highest, it'll be £7,500, all levied in addition to existing council tax.

The revenues will flow to central government rather than remain with local government, as is the case for standard Council Tax at the moment. Some houses will clearly be above those levels, but the revaluation is likely to catch properties that have been renovated recently, or where house price growth has taken them above the £2 million mark.

There are still question marks over this mass valuation. 'How forensic would a re-valuation exercise be and would it be down to each local authority to carry this out?," asks Marcus Dixon, head of residential research at JLL.

'Property tax in the UK is already overly complicated and not equally distributed and it stops housing market activity. If the government focused on getting transaction levels up by 50% so that we revert to moving five times in our lifetime rather than three, the tax haul would be far greater as would the positive impact on the economy and growth,' he says.

An 'outright punishment' for those who bought homes a couple of decades ago

There's more of an issue with the changes in house prices, though, which have wildly escalated in the high-demand parts of the country over the last 15 years, with the frenetic recovery following the Global Financial Crisis and the rise in working from home that followed the Covid Pandemic.

In the Cotswolds, for example, the average price for a detached house rose from £387,379 to £794,848 from 2009 to the peak in November 2024. Many people who bought homes for well under £1 million a couple of decades ago will have seen their property price burst through the £2 million ceiling — and so older home owners will be hit disproportionately.

'This tax is an outright punishment for those who have been able to buy a property decades ago, that since have gone up in value. It could mean financial ruin for many of these homeowners,' says Nigel Bishop, founder of the buying agency Recoco Property Search.

'A vast majority will have no other option but to sell up at likely reduced prices. In theory this frees up larger homes but does not automatically mean there will be buyers waiting,' he says.

The £2 million cliff edge?

With this new fiscal policy trailed in the days leading up to the Budget (and on the morning of in the leaked Office of Budget Responsibility document), some house sales are already being tailored to take into account the surcharge.

'We have already had clients bring their house price down to £1,999,000 and then add on £200,000 of fixtures and fittings separately, or parcel off the land, to get the deal over the line,' one country house agent tells Country Life.

Could it create a new £2 million cliff edge? The property market suffered from this for years when Stamp Duty was a 'slab' tax, imposed at a flat rate on the entire purchase price, with the percentage based on the ultimate valuation; the jumps up at £250,000 and £500,000 were notorious, until former Chancellor George Osborne scrapped the old system for one based on incremental rises back in 2014.

Yet that old system was very different, making a difference of tens of thousands of pounds payable on the date of the house sale. The new annual Mansion Tax is unlikely to create quite such an issue.

The £2m hotspots

Outer London

New research from JLL shows where across the country — by county — the highest number of £2 million sales have been over the last 12 months and which localised markets will be impacted the most.

Knightsbridge and Belgravia, Holland Park and Mayfair may come out as those wards with the highest number of sales over £2 million — but there are £2 million-plus terraced houses (once Victorian worker cottages) are dotted across the entire stretch of Greater London, with 2,551 sales in the last year, accounting for 3.2% of the UK total. Some of the biggest price rises over the past 10 years have been in the east of the capital — not least thanks to the Olympics effect — as buyers went in search for more space for their money. This is not just a tax on central London homeowners.

Windsor and Maidenhead

The golden M4 corridor from Windsor to Maidenhead has long been one of the most expensive parts of the country, with speedy access into London only getting better with the arrival of the Elizabeth Line. Some 2.4% of Britain's £2 million-plus homes are here, many in beautiful villages that line the Thames such as Sonning and Goring, with village homes commanding a premium and country piles tucked away down leafy lanes.

In Windsor itself there are plenty of homes priced higher than £2 million. For example Strutt & Parker is selling a five-bedroom terraced house for £2,795,000 within a few minutes' walk from the station and the castle grounds.

Surrey

The clusters of multi-million pound homes in Surrey account for 1.6% of £2 million-plus homes, and they're not all in St George's Hill, Wentworth and Oxshott. Further down the A3 are villages in high demand such as Chiddingfold, Shackleford and Hambledon. Among many others. There is a new build detached family home for sale in Chiddingfold priced at £2,265,000 listed on Rightmove.

Bath and beyond

The other counties that have a comparatively high proportion of £2 million sales, according to the JLL research, are Buckinghamshire (1.3%), Bath and north east Somerset (1%), Hertfordshire (0.9%) and Oxfordshire (0.7%).