A mansion tax on homes worth more than £2 million would be a blatant “London levy” with around 80% of the liable properties based in the capital and the south east, estate agents warned today.
It came as the London property industry digested the implications of reports that Rachel Reeves is considering loading property taxes on higher value homes in a market already effectively “on hold” because of the late timing of the Budget.
The suggestion latest is that the Treasury has been looking at a new annual 1% charge on the value of any properties over the £2 million threshold.
This would mean owners of properties worth £2.5 million having to find an extra £5,000 a year — or just over £400 a month — while a £3 million home would owe HMRC around £10,000 annually, or close to £800 a month.
Calculations by Lucian Cook, director of residential research at agents Savills based on annual transactions suggest that about 62% of homes in England in that category are in London with another 18% in the south east.
He said: “The burden would clearly fall on London where the market is already pretty patchy having been buffeted by a whole series of tax changes going back over a decade or more.”
Cook said the proposed levy would be an nightmare to administer and could lead to situations where a family who took on a huge mortgage to buy the house of their dreams was saddled with a massive extra tax bill despite their net property wealth being well below £2 million.
He added: “Also in that segment of the market valuations are very nuanced and sensitive to the standard of finish of the property. The outside might not be representative of what you see when you walk through the door and that can have a huge impact on valuation.”
“ The proposed tax is likely to have a very high impact on pensioners who may not have the necessary income to pay a mansion tax. One person’s mansion in the North is a modest townhouse in the South. It would be costly to administer, impossible to value fairly, and risks doing real harm to London’s housing market. Beware the law of unintended consequences.”
The Chancellor needs to raise as much as £30 billion in her Budget next month to comply with her “iron clad” fiscal rules through tax rises or spending cuts and is under growing pressure from the left of the Labour party to target the wealthy.
She has consistently said that those with the “broadest shoulders” should pay their “fair share,” of taxes in strong hints that London should be braced for another tax raid.
London property experts said the proposed tax would have grave implications for the capital, which already contributed more than 40% of residential stamp duty revenues, rising to more than 60% if the south east is included.
Last year about a quarter of all the £8.6 billion tax revenue raised from residential stamp duty came from homes valued at more than £2 million.
Becky Fatemi, executive partner at Sotheby’s International Realty UK said: “Homeowners have already paid huge amounts in stamp duty, council tax and upkeep. Asking them to pay again every year for the privilege of owning their dream home would punish the very people who keep the market moving.”
Jeremy Gee, managing director of high end estate agents Beauchamp Estates said: “’Floating the idea of a mansion tax, without clarity or consultation, risks unsettling homeowners and investors yet further.
“Many properties affected by the rumoured tax are long-time family homes, not speculative assets, and their owners are already dealing with higher interest rates and substantial stamp duty costs.
“What this sector needs is thoughtful, long-term policy—not reactive measures that could erode market confidence and dampen economic recovery.”
Mark Pollack, co founder of agents Aston Chase said: “Deferring the Autumn Budget to 26 November has already had a huge negative impact on the volume of sales of residential property in the last quarter of the year and an ill considered further attack on wealth will highly likely result in a significant downward realignment of property values which have already seen reductions of circa 20% become commonplace in PCL.”
Andy Teacher, co-founder of specialist policy agency Lauder Teacher, said the proposed mansion tax “will simply put the final nail in the coffin of the government’s housing targets.”
