Housing Market Outlook: The Impact of the New Mansion Tax
Rachel Reeves long awaited Budget finally addressed all the speculation surrounding tax hikes for those living in properties over £2million. There had been much debate about the potential impact of the news which led to a stagnation in the market as home owners put plans on hold in anticipation of the Budget announcement.
Indeed, experts at Savills noted that in the run up to the budget London sales were down 20% on this time last year.
What is the new ‘Mansion Tax’?
The official name of the new tax is the HVCT = High Value Council Tax and it will come into force from April 2028. It is expected that this new tax will raise £430million per year from 2028. The tax will be based on 2026 values and property prices will be revalued every 5 years.
The new surcharge will apply to properties valued at more than £2m, which the government estimates will affect fewer than 1% of properties in England.
Council tax is currently divided into bands (A to H in England), with charges set by local authorities. In 2024-25, the average Band D council tax bill in England was £2,171. Houses in bands F, G and H are the ones most likely to be impacted. Unlike council tax, which is paid by whoever is occupying the property whether they own it or are tenants, the HVCT will only be paid by owners, so landlords of high value properties will have to find these extra fees.
However, the outdated banding means some households in less valuable homes pay proportionally more than those in higher-value properties, which the new surcharge aims to address.
The taxation rate is dependent on a property’s value:
- Owners of properties valued from £2m to £2.5m will pay £2,500
- Owners of properties valued from £2.5m to £3.5m will pay £3,500
- Owners of properties valued from £3.5m to £5m will pay £5,000
- Owners of properties valued over £5m will pay £7,500 a year
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.
Who is going to be most impacted by the new tax?
More than two thirds of the homes above £2million threshold since 2020 have been in London and this is closely followed by homes in the South East, meaning that these areas that will be most impacted. Indeed, Savills anticipate that heavily mortgaged owners of high value homes, will start to move to a less valuable property thereby pushing some demand out of London and into the commuter zones.
However, those who will likely to be hardest hit are retirees or long-term owners who bought their homes decades ago. Their property value may have doubled or trebled, but their pension income will not have increased in the same way. They could now be facing tax bills that exceed their disposable income.
On the upside, this may mean that more downsizers decide to commit to selling their properties which will free up more sizeable family homes and help to get housing chains moving.
Possible Impact on the Housing Market
In summary, Chiltern Relocation believes that there will be some adjustment to the market in the short term whilst property owners and landlords digest the news but on the whole that we will see:
- An uptick in the market as the new measures are not as punitive as previously feared
- Some homeowners choosing to sell or avoid making improvements that could increase the value of their home.
- An increase in downsizers freeing up the higher end properties
- Indebted owners feeling pressured to move if they cannot afford the surcharge.
- The market remaining more price sensitive for longer and especially in second home locations
- Likely ‘bunching’ around thresholds whilst values are agreed
If you are thinking of moving to the area and would like more information about the housing market and advice then please do get in touch. Call 01494 672086, email enquiries@chilternrelocation.com or visit our site for more information www.chilternrelocation.com
