The Lead Untangles: Is the mansion tax fair?
What is the mansion tax, who does it affect, and does it go far enough?
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In yesterday’s budget, the Chancellor dared to address the disparities in our broken council tax system.
“A band D home in Darlington or Blackpool pays just under £2,400 in council tax,” she said. “Nearly £300 more than a £10 million home in Mayfair.”
So, she announced the introduction of a “High Value council tax surcharge” in England – which is also being called a mansion tax – which would, from 2028, place an annual surcharge on homes worth more than £2 million. This, she said, will raise more than £400 million by 2031.
Already, debate has broken out about whether or not this is fair: cash-poor pensioners and people who bought their homes a long time ago may be forced to move out, displacing them from their current communities. People in wealthy boroughs claim their ‘modest’ £2 million property is nowhere near a so-called ‘mansion’. Meanwhile, others argue the tax isn’t progressive enough.
So: what is the mansion tax, who does it affect, and does it go far enough?
How will the mansion tax work?
From April 2028, people who own homes worth over £2 million have to pay an extra fee per year, on top of council tax. There will be four bands, each paying a higher surcharge:
Properties valued from £2m to £2.5m will pay £2,500
Properties valued from £2.5m to £3.5m will pay £3,500
Properties valued from £3.5m to £5m will pay £5,000
Properties valued at more than £5m will pay £7,500
These figures will reportedly rise in line with inflation, after the 2029-30 tax year.
The surcharge will be based on property valuations carried out by the Valuation Office in 2026. Homes in the upper council tax brackets (F, G and H) will be revalued.
The Government said the tax will raise around £400 million by 2030. However, the Office for Budget Responsibility said the costings for the new surcharge had a high degree of uncertainty. Unlike council tax, the tax will be paid to the Treasury where it can be used for central government spending.
Who will be affected?
The Treasury has said it expects the measure to apply to fewer than 1 per cent of properties in England.
There are currently about 145,000 UK homes valued at more than £2 million, according to Savills, but Knight Frank estimates that number will rise to 190,000 by 2028, as reported by the London Standard. The majority of those properties are in London and the South East.
Data by JLL found eight of the top 10 local authorities in the country by the highest number of £2 million-plus sales were London boroughs, and the outlying two in the Home Counties (Elmbridge and St Albans). In expensive areas such as central London, homes worth £2 million could well be relatively small.
There are around 2.4 million households that are in the upper three council tax brackets and will be subject to revaluation, and around 600,000 of those are in London.
Is it unfair?
While the tax could hit cash-poor, asset-rich families who bought their homes long before the value went up, quite hard, the government will bring in reliefs or exemptions and is likely to allow people to defer the cost until they die or move house, to avoid forcing them to sell up. However, none of these details have been ironed out and will be subject to a consultation.
Some homeowners may have to downsize, while others may need to use equity release to pay the surcharge without having to sell up.
In England, most of the highest valued properties are in areas with the lowest rates of council tax. That means people living in areas like Knightsbridge – where the average home is £20 million – are paying less than half per year than people living in Blackpool, where the average price of a property is £149,543. That’s because council tax is currently based on old valuations made in 1991, before some parts of the country became more affluent. This is why there have been calls for reform.
However, some feel the mansion tax doesn’t go far enough to address the problems with council tax, which is ultimately regressive. Those campaigning for fairer council tax have called for a proportional property tax, which would instead see all properties taxed at a flat rate between 0.48 - 1 per cent of the current market value. This would be paid by the owner, not the occupier. This would make council tax fairer across the board, although any reforms would still need to account for those cash-poor, asset-rich households affected by the mansion tax.
What are people saying?
Aditi Sriram, economist at IPPR, told The Lead: “The mansion tax is a long overdue step toward fixing a highly regressive system where high value properties have been paying disproportionately less than modest homes.
“This is hopefully the starting point of a wider programme to revalue properties and transition to proportional property tax by the end of parliament – cutting bills for the majority of households and ensuring that the entire system becomes genuinely progressive.”
The Institute for Fiscal Studies said: “There’s a reasonable case for levying more high-value homes, but the design of this tax leaves much to be desired.”
Dominic Agace, chief executive of Winkworth, said: “Many £2 million plus properties are likely to be terraced family homes. There is a danger that more uncertainty will be the result of this move, with delays on the revaluations inevitable.
“Many people living in London in £2 million plus homes are those who are leveraged with large mortgages or those with their property as their only asset and living on a small retirement income.”
Shadow Housing Minister James Cleverley said: “The policy depends on a revaluation of properties across Bands F, G and H. This is patently unfair. Rerunning valuations for some properties but not others will mean two different systems in operation – as if our tax laws weren’t complex and opaque enough already. And it confirms that Labour are waging war on aspiration, applying a new, punitive system to people with more valuable homes.”
The Lead’s Westminster Editor, Zoe Grunewald, said: “The so-called ‘mansion tax’ is a positive move, but the decision to implement on £2m+ properties raises just a meagre £0.4bn. Right-wing broadsheets are already offering tongue-in-cheek guides on how to devalue your home to dodge it, meanwhile, the obvious reform to the regressive council tax bands remain politely ignored.”
What happens next?
The policy only comes into force in 2028. Now, the government will begin a consultation to iron out the details, including any exemptions, reliefs or deferral schemes. Only then will we know the true value – and cost – of the mansion tax.■
About The Lead Untangles: In an era where misinformation is actively and deliberately used by elected politicians and where advocates and opposers of beliefs state their point of view as fact, sometimes the most useful tool reporters have is to help readers make sense of the world. If there is something you’d like us to untangle, email ella@thelead.uk.
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Ella, Natalie, Zoë, Ed, Luke, Padraig, and The Lead team.