Mansion tax on high value UK homes being considered by Chancellor Reeves to plug budget gap

Rachel Reeves, the Chancellor, is exploring plans that would see owners of high-value residential properties facing a new capital gains tax when they sell their homes. This move, designed to address a reported £40 billion deficit in the public finances, marks a potential end to the long-standing capital gains tax exemption for primary residences valued above a specific threshold.

Current discussions within the Treasury suggest that homes worth over £1.5 million could be caught by the new tax regime. Under these proposals, higher-rate taxpayers would be subject to a 24 percent tax on any increase in the value of their property at the time of sale, with basic rate taxpayers facing an 18 percent charge. Estimates indicate that approximately 120,000 homeowners could be liable for average capital gains tax bills close to £200,000 if these changes are enacted.

Market analysts have voiced concerns that such reforms could dampen activity in the upper echelons of the property market. There is a risk that owners of expensive homes will be more inclined to remain in their properties rather than sell, potentially slowing housing market transactions and even affecting Treasury revenues as a result. Pensioners considering downsizing could be particularly impacted, potentially dissuading them from moving and thus limiting the supply of family homes.

The government is also contemplating additional measures, including a new levy specifically targeting high-value residential sales. While speculation had suggested thresholds as low as £500,000 for an annual charge, Treasury insiders believe a far higher figure would be required to avoid broader market disruption.

This renewed focus on property taxation arises as alternatives such as increasing income tax, national insurance or VAT have been ruled out in line with Labour’s manifesto commitments. Council tax, still calculated on 1991 property values, is widely regarded as outdated and regressive; homes valued at £1 million currently pay only twice as much council tax as properties worth £80,000. Experts from the Institute for Fiscal Studies have noted that reforming council tax or introducing new high-value property bands could provide a more proportional system but would come with considerable political complexity.

Some sector experts have suggested that any tax based on recent gains might raise limited revenue, particularly given that prime London property values have fallen in the last decade. The introduction of a mansion tax or the removal of private residence relief could have unintended consequences, including suppressed transactions and reduced mobility within the housing market. If downsizing is penalised, family homes may become scarcer, which impacts both aspiring homeowners and fiscal receipts.