How the mansion tax could affect you even if your home is valued below £2 million

Owners of high-value homes worth £2 million may already be on alert about a mansion tax but there are warnings that the new levy could affect homes below the threshold.

Chancellor Rachel Reeves unveiled plans for a mansion tax in her 2025 Autumn Budget.

Under Treasury proposals that will be consulted on this year, owners of homes in England worth £2 million or more will have to pay an extra High Value Council Tax Surcharge from April 2028.

The Valuation Office Agency (VOA) will be tasked with valuing homes but its boss revealed this week that even homes below the £2 million threshold could be hit.

Meanwhile, homeowners with prime properties in Scotland also won’t escape the charge after the Scottish Government this week unveiled plans for its own version of the mansion tax, which will apply on homes worth more than £1 million.

What is the mansion tax?

Reeves has claimed that the charge will make the tax system fairer.

Launching the tax in her Budget speech, she said: “A typical family home in England pays more council tax than a £10 million Westminster mansion, so the Budget also introduces a High Value Council Tax Surcharge on homes worth more than £2 million, while protecting those on low incomes.”

Once valued, eligible homes will be placed in four price bands based on their house prices. The bands start at £2,500 for a property valued in the lowest £2 million to £2.5 million band and go up to £7,500 for a property valued in the highest band of £5 million or more, all uprated by CPI inflation each year.

The money will be collected by local authorities and will be used to support funding for local government services.

The government said it will set up a support scheme for those who may struggle to pay the charge and will consult on a full set of reliefs and exemptions.

Who will be affected by the mansion tax?

The Treasury estimates that fewer than 1% of properties in England are expected to be above the £2 million threshold.

But speaking to MPs this week, Jonathan Russell, head of the VOA, revealed that its valuation professionals will “probably look at houses that have an indicative value of £1.5 million just to make sure we’re not missing anything”.

This has prompted warnings that family homes on the cusp of the threshold could be hit.

Louis Mason, communications director at Oportfolio Mortgages, said the comments from the VOA are already creating unease among owners of high-value properties, particularly those sitting anywhere near the proposed thresholds.

He said: “Prime and super-prime markets are highly sentiment-driven, and uncertainty around future tax liabilities tends to delay decisions. We’re likely to see some owners hold off on buying, selling or refinancing until they understand how values will be assessed and how often.

“For those close to the threshold, behaviour is already becoming more cautious. Some homeowners may delay major improvements that could push them over a valuation line, while others may consider selling earlier than planned to avoid future exposure.”

Separately, the Scottish Government has confirmed plans for a mansion tax in Scotland from April 2028 that will be applied to properties worth more than £1 million and collected through council tax.

Marc Acheson, specialist at wealth manager Utmost, said this is indicative of a wider trend we are seeing across the Western world, with governments and policymakers increasingly turning to the wealth community to plug fiscal gaps.

He said: “While this may seem like a politically lower-risk lever to pull, Scotland – like other countries – faces the reality that the wealth community is highly internationally mobile.

“Even if such measures don’t end up being implemented, the mere suggestion of them can trigger behavioural responses, accelerate capital flight and ultimately leave governments with a smaller tax base.”

There are plenty of other critics of the move.

While the mansion tax could be seen as a way of targeting some of the wealthiest homeowners in the UK, JackMalnick, managing director of Sell House Fast, said there’s the risk that families who purchased modest homes several decades ago are unfairly hit.

He said: “These families and homeowners aren’t living in sprawling, vast estates, nor are they necessarily cash rich, they’re victims of living in an area where the value of homes has risen at a rate that far exceeds the national average, leaving them in a precarious position.

“Penalising them with an additional levy feels unfair, especially when many are retired or on fixed incomes. Policymakers must recognise that a home’s value doesn’t always reflect a homeowner’s financial position and adjust this accordingly.”

Jonathan Turner, partner at law firm Morr & Co, where he specialises in property law, suggests there will be plenty of disputes over valuations, especially if they are plus or minus £100,000 from the threshold.

He said: “This tax will trigger a surge in downsizing, which will saturate the market with valuable properties. In turn this will likely depress values overall, thus decreasing the ‘mansion tax’ income to the government.”