Mansion tax to target luxury properties as council tax overhaul announced

Chancellor Rachel Reeves will introduce a new surcharge on more than 100000 of Britain’s most valuable homes as part of measures aimed at balancing government finances and increasing taxes on the wealthy. The threshold for the so called mansion tax has been raised to properties worth over £2 million; a move designed to focus on the top end of the market after earlier plans were deemed too broad.

The Treasury intends to revalue approximately 2.4 million of the most expensive properties, covering council tax bands F, G and H. The levy will be applied using an escalator, resulting in an average additional charge of £4500 for affected households. Owners of higher value properties will face significantly increased bills, although the option to defer payment until the property is sold or inherited will be available to help those who are asset rich but cash poor.

Reeves had initially proposed a lower £1.5 million threshold, which would have captured around 300000 homes, but concerns about the impact on long standing residents, particularly in London, led to the higher cut off. The revised scheme is expected to generate between £400 million and £450 million in revenue, with funds collected via council tax.

The Office for Budget Responsibility has forecast a possible slowdown in high end property transactions, warning that the policy could cause market distortions as owners seek to avoid breaching higher tax bands. Industry analysts expect some price adjustments and a period of uncertainty during the revaluation process. Once new valuations are settled, the property market is anticipated to stabilise, although negotiations at key price points could become more complex.

Property experts have emphasised the need to avoid excessive measures that could trigger capital flight or undermine wider housing market objectives, including plans to build 1.5 million new homes. The chancellor said the tax aims to address imbalances within the existing council tax framework rather than overhaul revenue generation. While government sources expect the overall impact on the housing market to be modest, some behavioural changes are likely as buyers and sellers respond to the new thresholds.

This mansion tax is one of several measures in a package of tax rises designed to finance the scrapping of the two child benefit cap and increased welfare spending. Reeves also plans to freeze income tax thresholds until 2030, impose a tax on pension contributions, and introduce levies on gambling, electric vehicle usage, and tourism. These policies are projected to contribute a further £8 to £10 billion in public revenue and will see a record number of Britons move into higher tax brackets by the end of the decade.

Implementation of the mansion tax is unlikely before 2028, as time will be needed to complete the necessary property revaluations. The coming years are expected to be marked by property market adjustments and ongoing debate over the future shape of council tax and property taxation in the United Kingdom.