Property experts are raising concerns about a potential expansion of mansion taxes in the United Kingdom, following comments from Chancellor John Healey suggesting the government is reviewing its stance on council tax. Healey indicated that a new tax band for "extremely valuable properties" could be introduced, possibly in the upcoming Budget on October 28.
While the exact details remain undisclosed, industry insiders suggest that to increase revenue, the threshold for the mansion tax could be lowered from £2 million to £1.5 million, with an increase in surcharge rates. These rates currently range from £2,500 to £7,400 annually, in addition to the existing council tax bill. Tom Bill, head of residential research at Knight Frank, noted that "there is a sense of unfinished business on the issue" and that further property levies might be under consideration by the Treasury. He added that current rates could be "introductory" and that more homes might be brought into the mansion tax net.
Previous Estimates and Concerns
The mansion tax, introduced in the previous budget, was estimated to generate £430 million annually, with a significant portion expected from four London boroughs: Kensington and Chelsea, Richmond, Wandsworth, and Westminster. Critics have previously dismissed this figure as a small fraction of overall government revenue, especially when accounting for administrative costs and potential legal challenges.
Reports from July indicated discussions within the government about expanding the tax's scope to include thousands more terraced and semi-detached homes in London and the South East. Heightened suspicion of such action has been fueled by reports that officials from HMRC’s Valuation Office Agency (VOA) might seek to enter properties to assess their value, a prospect that has drawn considerable protest.
The VOA is currently revaluing properties in council tax bands F, G, and H to determine eligibility for the mansion tax, which is set to take effect from April 2028. Chancellor Healey may aim to collect more revenue by extending the tax to an additional 70,000 to 100,000 properties. However, Charles Curran of estate agency Maskells cautioned that such a move could be counterproductive. He suggested that increased costs for homebuyers could reduce their mortgage capacity, subsequently putting downward pressure on house prices and potentially decreasing the number of properties subject to the tax and the overall tax yield.
Wider Tax Policy Impact
Healey's remarks have also sparked broader anxieties that the government might be pursuing tax reforms primarily to satisfy left-wing members of Parliament, potentially at the expense of the property market and tax revenues. James Quarmby, head of private wealth at Stephenson Harwood, pointed to the abolition of the 'non-dom' tax regime last year, which he stated cost the Exchequer up to £4 billion. While the government had anticipated generating up to £3 billion by tightening regulations for wealthy individuals not domiciled in the UK for tax purposes, Quarmby argued that the move resulted in a net financial loss. He explained that many high-net-worth individuals targeted by the crackdown relocated to countries with more favorable tax systems, such as Italy, thereby reducing income tax receipts and stamp duty revenue due to decreased demand for high-end real estate.