The Mansion Tax is here: 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.

Who will be hit by the Mansion Tax?

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.

In addition, it's perhaps important to remember that the new tax is dwarfed by Stamp Duty. The typical buyer of a £5 million house currently pays over £513,000, suggesting that a further £7,500 a year charge is unlikely to make a material difference.

It's a point made by Will Watson of The Buying Solution. 'For our clients buying properties at £5 million or more, £7,500 a year will not deter them, for them relatively it is stomachable,' he says.

For those who bought homes a generation ago, and now live off limited pension income, things will look very different. A detached four-bed in a London suburb, or a country house with a couple of acres in the Home Counties could easily reach a £2 million valuation, and many owners of such homes will face having to pay over £200 a month more.

When will the Mansion Tax come into force?

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.'

The glass is also half-full for Will Watson of The Buying Solution, whose phone buzzed the moment that the Mansion Tax details leaked early.. 'The first message I received from a client was one of relief: "good news, let’s get going", and a second reading "let’s make that deal [circa £20 million] happen".'

Lucian Cook agrees.

'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.'

As for the country market, buying agent Jennie Hancock of West Sussex-based Property Acquisitions says that the change couldn't have happened at a worse time.

'Properties priced between £2–4 million are already struggling,' she says.

'I’m seeing discounts of as much as 25% for beautiful country houses that buyers would have been queuing up for just three or four years ago.

'I expect this to worsen, creating a two-tiered market in which demand for higher-value properties falls even further, while the £1–1.7million price bracket becomes more buoyant.

'The one silver lining is that the tax won’t come into effect until 2028, which leaves a decent window for downsizers to make their move – and I expect many will, even if they have to take a hit on the price. Retirees on fixed incomes won’t want the burden of an additional annual bill they haven’t factored into their long-term plans.'

Jo Eccles, founder and Managing Director of prime central London buying agency, Eccord, agrees, saying that the new tax 'is likely to create a cliff edge at the £2 million mark and would effectively freeze the market just above it.'

And Tom Bill of Knight Frank is worried that the two and a half-year valuation period will cause new problems:

'Until the revaluations take place, buyers and sellers face years of uncertainty, especially around the £2 million threshold,' he says.

'Even once completed, new valuations can be challenged, which would prolong the limbo.

'The policy may also raise less than expected, especially because it is deferrable. If opposition parties say they would scrap it, many homeowners will look at the opinion polls and wait it out. When you factor in the cost of carrying out the valuation and the potential lost stamp duty revenue from a stickier market, the sums raised could look like a rounding error for the Treasury.'

George Nares, co-founder of Blue Book Agency, sees things differently: 'The Mansion Tax may be far from ideal for country house owners, but its banded structure is at least a relief compared with the originally floated idea of charging a percentage of the property’s value over a threshold,' he says.

'New buyers particularly in the market above £5 million will be relieved not to face an annual bill based on a percentage of a large portion of the headline price. Demand for rare historic homes will continue, supported by buyers who value their character, heritage and the unique lifestyle they offer.

'These homes are long-term commitments that help sustain rural economies, supporting local trades, crafts and communities. Most custodians are deeply invested in maintaining and improving their properties, and a well-calibrated banded system should allow many to continue that work with confidence.'