Rachel Reeves has announced a mansion tax on homes worth more than £2 million.
The “high value council tax surcharge” will apply in England from 2028 and will raise £400m a year for the government, the chancellor said in Wednesday’s budget.
Homeowners will have to pay the annual charge on top of their council tax bill.
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The move was widely rumoured before the budget, but what is notable is another proposal expected to be announced was not.
Ms Reeves was expected to introduce a re-evaluation of homes in the three highest council tax tiers (F, G and H), with a surcharge on them.
She did not announce this, but instead said there will be four bands for the new mansion tax, with values based on 2026 prices.
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The lowest band, for properties worth between £2m and £2.5m, will pay £2,500.
The highest band, for homes worth £5m or more, will pay £7,500.
Ms Reeves and the Office for Budget Responsibility (OBR) did not reveal the two middle bands and charges.
But she said the surcharge would be uprated annually by the Consumer Price Index (CPI) inflation.
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The extra revenue will go straight to central government, not to local councils, as is the case for standard council tax.
Ms Reeves said the charge would apply to fewer than 1% of all properties, and would help “deal with a long-standing source of wealth inequality”.
There will be a consultation on support for homeowners and a deferral scheme for those unable to pay immediately, taking into account homes bought decades ago that have soared in value.
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The OBR said it was highly uncertain about the £400m it predicted the tax would raise each year, and would adjust the forecast, if needed, after the consultation.
Paul Johnson, former director of the Institute for Fiscal Studies, said the bands would create “big spikes at specific valuations”.
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Rob Hillock, head of personal financial planning at financial services consultancy Broadstone, said: “The chancellor’s introduction of a ‘mansion tax’ on houses valued above £2m will likely prompt many homeowners to get an up-to-date valuation of their property wealth.
“It has the potential to create market distortions as homeowners look to reduce the value of their home to avoid additional tax or prompt some to downsize to smaller, cheaper homes.
“The OBR notes in its comments that the reform could see price bunching below each of the four new price bands as homeowners look to minimise their tax liability.”
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Mark Campbell, head of wealth at financial consultancy Isio, said the mansion tax makes a “flawed assumption” that those living in homes worth more than £2m have the liquid wealth or income to pay the tax.
He said it risks penalising people who are asset-rich and cash-poor, especially in London and the southeast.
He also warned the mansion tax risks sending a message that the UK is a less attractive place for investors, wealth creators and entrepreneurs.
