A proposed mansion tax would disproportionately target London homeowners, where two-thirds of the qualifying transactions happened this year alone, new analysis has found.
Ahead of the Autumn Budget tomorrow, Wednesday 26 November, there is speculation that Chancellor Rachel Reeves may introduce a so-called “mansion tax” on properties valued over £2 million. Homeowners would potentially be required to pay a one per cent annual levy on the value above this level.
This would mean that the owners of properties worth £2.5 million would pay an extra £5,000 a year in tax, while owners of a £3 million home would need to pay £10,000 annually. It’s expected that the tax would be added to council tax bills.
The impact of such a tax, however, would fall predominantly on Londoners, analysis from high-value mortgage brokerage Enness Global has found.
In the last year, 1,434 homes have sold for more than £2 million across England and Wales, accounting for 0.4 per cent of all properties sold. Of these, 940 — 66 per cent — were in London, representing 2.3 per cent of all homes sold in the capital.
Across London, eight per cent of homes currently listed for sale have an asking price above £2 million, according to Enness Global. But in the prime London market, this proportion climbs to 35 per cent of all properties for sale.
Hamptons published similar findings earlier this month. The agency estimates that around 0.5 per cent of homes in England are worth £2 million or more, which is equivalent to around 100,000 privately owned or rented homes. Of these, it believes 50 per cent are located in London and 85 per cent in the south of England.
According to Hamptons, the average value of a £2 million-plus home is £5.1 million, meaning that the tax could raise around £3 billion a year.
Predictably, Enness Global’s analysis shows that homeowners in London’s most expensive areas would be most affected by the proposed tax. It estimates that homebuyers and sellers in Mayfair would be most exposed, with 78 per cent of all available homes in the area currently listed at above £2 million.
In Knightsbridge, likewise, 61 per cent of homes are currently advertised above the £2 million mark, with 58 per cent in Belgravia, 40 per cent in Chelsea, 39 per cent in Fitzrovia and 38 per cent in Kensington.
“Any proposal for an annual mansion tax risks unfairly targeting London homeowners and undermining one of the capital’s most important markets,” says Islay Robinson, CEO of Enness Global.
“Beyond fairness, there’s also the question of market function. The introduction of such a levy could distort pricing behaviour and deter both domestic and international investment at a time when the UK needs to encourage capital inflows and restore housing confidence.”
There are other concerns about the potential impacts of a mansion tax. Hamptons says that it could depress the values of affected homes and create a “cliff edge” at the £2 million mark.
Although a tax might encourage some cash-poor homeowners to downsize, stamp duty remains a “major barrier” to sales. And property values, it argues, are not always a reliable proxy for wealth.
Knight Frank, likewise, says that speculation about the Budget is already having an impact on property values in prime central London. According to the agency’s figures, values fell by four per cent in the year to October, which was the steepest decline since February 2021.
Even supporters of higher taxation, like The Green Party, favour a wealth tax rather than a tax on expensive properties.
A mansion tax is one of a number of measures earmarked for the Budget that analysts believe may disproportionately impact Londoners, including a rumoured national property tax and higher council tax rates for the top bands.
