What could a Mansion Tax mean for homeowners?

From April 2028, a new council tax surcharge will apply to residential properties in England valued over £2 million (based on 2026 valuations by the Valuation Office). This will be an annual charge, on top of existing council tax bills.

There will be four property value bands, with annual surcharges ranging from:

• £2,500 for properties valued between £2 million and £2.5 million

• Up to £7,500 for properties worth £5 million or more

These charges will be uprated by CPI inflation each year, and the revenue, estimated at £0.4 billion by 2029-30, will go to central government, not local councils.

Jon Chambers, Tax Director at Price Bailey, who commented prior to the budget, has said:

“A mansion tax was heavily speculated ahead of the Budget. Instead of a percentage rate charge over £2m as anticipated, there will now be flat rates applied from £2,500 to £7,500 for properties valued between £2m and £5m+. With the collection of the tax alongside council tax, the cash flow will be felt by more homeowners in the absence of a deferral of the tax until sale. Owners have until April 2028 when the tax comes in to assess their position.”

The Office for Budget Responsibility (OBR) expects the cost of the surcharge to be passed on in full over time through lower property prices. It also anticipates some price clustering just below band thresholds, slightly reducing the number of properties affected. This behavioural response, along with some non-compliance and appeals, is expected to reduce the net yield and could impact other property taxes like stamp duty and capital gains tax in the short term.