Rachel Reeves has introduced a new tax on properties valued above £2 million to ensure wealthier individuals contribute their fair share. Dubbed the “mansion tax,” this levy is projected to affect 100,000 to 200,000 homes, imposing an additional charge of £2,500 on properties exceeding £2 million and £7,500 annually on houses valued at over £5 million.
The implementation of this tax by the Chancellor is anticipated to generate approximately £400 million per year for the Treasury, with an estimated revenue of £0.4 billion in the fiscal year 2029/30. Referred to as a “high value council tax surcharge,” this measure aims to address longstanding wealth disparities in the country.
Reeves emphasized the need to rectify existing wealth inequality, pointing out the discrepancy where a Band D property in Darlington or Blackpool pays nearly £2,400 in council tax, surpassing the amount paid by a £10 million mansion in Mayfair by almost £300. To tackle this issue, starting in 2028, the High Value Council Tax Surcharge will be introduced in England.
In England, council tax is categorized into bands based on property valuations from April 1991. The new surcharge targets properties falling under bands F, G, and H, affecting less than 1% of all properties. Unlike standard council tax, the revenue from this surcharge will be directed to the central government.
The Office for Budget Responsibility outlined that from April 2028, properties valued above £2 million will be subject to an additional annual charge in addition to the existing council tax. The surcharge will vary across four price bands, ranging from £2,500 for properties valued between £2 million and £2.5 million to £7,500 for those valued at £5 million or more.
Initially proposed with a £1.5 million threshold that would impact 300,000 households, the threshold was raised to £2 million to avoid disadvantaging “asset-rich, cash poor” families. The Institute for Public Policy Research (IPPR) suggested that reforming property tax could reduce council tax bills for 80% of households, providing funding for essential public services.
Sarah Nankivell from the Common Wealth think tank welcomed the mansion tax but called for more substantial actions, such as aligning capital gains and dividends tax rates with income tax rates, to create a fairer tax system and address income disparity.