The Mansion Tax is coming: Who will be hit, when and for how much

After months of speculation, leaks, briefings and 'kite flying' of potential policies, Chancellor of the Exchequer Rachel Reeves announced that a new Mansion Tax — officially called the 'High Value Council Tax Surcharge' — will be levied from April 2028.

Four new bands will be put into place, starting at £2-£2.5 million and going up £5 million-plus. Houses assessed as falling into these brackets will face a Council Tax surcharge of between £2,500 and £7,500.

Less than one per cent of properties in the UK will be hit by the new tax, according to Reeves.

The 30-month delay to the implementation of the new policy isn't down to largesse from the Government, but rather in order to allow time for a reassessment of homes in the Council Tax bands F, G and H, which is expected to take a couple of years.

The Council Tax bands have remained unchanged since they were originally assessed in 1991.

In many parts of Britain the new tax will hit only the largest homes, but in the big cities that will not always be the case, as critics have been pointing out.

'In London, this is a terrace tax, not a mansion tax,' says Dominic Agace of Winkworth.

'Many £2 million-plus properties are likely to be terraced family homes.'

Thousands of families living in such houses, according to Agace, will be unfairly targeted since they are owned by people 'leveraged with large mortgages or those with their property as their only asset and living on a small retirement income.'

Agace also suggests that the tax could keep international buyers away from the capital, and prompt 'those already here to sell up'.

Lucian Cook of Savills has a different view, suggesting that the pre-budget bark was worse than the bite.

'After what must have been the most prolonged exercise in kite flying in the run up to a Budget, the introduction of an annual tax surcharge for properties worth over £2m, at levels somewhat lower than many will have feared, is probably the least worst outcome for owners of prime property,' he says.

'With the uncertainty in the run up to the budget having already impacted prices, the impact on the market will be much less severe than it would have been in the event of an open-ended mansion tax.'

Cook also suggests that the market could actually see a boost since the period of speculation is now at an end.

'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,' he says.

On top of that, there could be benefits in keeping the market moving, and prompting 'empty nesters' still living in large houses to sell to young, growing families: 'Over the longer term the measures are likely to act as slightly greater incentive for older home owners to downsize and, in some cases, heavily mortgaged owners of high value homes to move to a less valuable property pushing some demand out of London into the commuter zone.

'However, this impact will be tempered by an ability to defer any charges until sale or death which should prevent a rush of stock coming to the market.'

Cook suggests that the impact on the top end of the property market in London is unlikely to be significant. 'The policies themselves are not big enough to warrant a change in the demand supply dynamic of the central London 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.'