An Introduction to the Mansion Tax

After months of speculation the 2025 Autumn Budget delivered far fewer surprises for homeowners than many had feared. The introduction of a new ‘mansion tax’ has caught the headlines.

The tax introduces an annual surcharge for properties valued at £2 million or more, this affects only a small fraction of homes and will not take effect until April 2028.

Nationally it is estimated that less than 1% of residential properties are valued over this threshold with a far higher proportion located within the Southeast with the greatest concentration in London where many of the ‘Mansions’ by value will be apartments and terraced houses.

However, those owning, buying or selling high-value homes in the next few years need to be aware of what’s coming and what the mansion tax means for them.

The supplemental charge will range from £2,500 per year on properties between £2m and £2.5m, £3,500 on properties between £2.5m and £3.5m, £5,000 between £.3.5m and £5m up to a maximum charge of £7,500 on homes worth £5million or above. The charge is expected to rise in line with annual inflation.

A public consultation on the tax will be undertaken in early 2026. It is however known that the additional charge will be levied by the Local Authority but will not be determined by current council tax bands which date from the revaluation in 1991 and despite some speculation properties in the higher 3 tax bands will not be assumed to be eligible.

Instead, the Valuation Office Agency will carry out a separate, targeted valuation exercise to determine a property’s value in 2026. If a property is identified as being worth £2 million or above, it will then be placed into one of four higher value bands.

All homeowners are expected to be responsible for paying the tax, although it has been reported that there may be the option to defer payment until you sell or be settled after death.

Whilst implementation is a few years away it is likely to begin to have an impact upon the property market more quickly. The effects are likely to be more acute around the £2m threshold and lower value band. This part of the housing market has already seen demand drop significantly due to increases in interest rates and the rising cost of living.

Houses valued just above the threshold are going to be under pressure to be marketed below to avoid the surcharge potentially leading to a bubble of properties just below the £2m threshold. This may result in properties valued below the threshold comparing less favorably and suppressing values further. It is unclear whether a sale price will be sufficient to override an official valuation.

Whilst it will be the homebuyer’s responsibility to pay the tax, where properties are rented out, landlords are likely to want to increase rents to recoup some or all the additional costs. The extent to which this can be achieved will remain to be seen particularly given the introduction of the Renters Reform Act.

The tax may also encourage buyers to areas which offer better value for money. Tunbridge Wells, Wadhurst and surrounding villages already benefit from buyers moving out of London and this situation may increase further.

Finally, the tax may begin to impact upon plans for new housing developments since developers targeting the high-end market may adjust pricing or reconsider the size and value of the homes they’re building if demand for properties worth more than £2 million cools.