UK Chancellor Rachel Reeves today announced a tax on properties worth more than £2 million in a budget which was accidentally leaked shortly before she rose to speak.
The so-called "mansion tax" is expected to raise £400 million in 2029-30, according to the Office for Budget Responsibility which blamed a “technical error” for accidentally releasing the details early.
The OBR’s report, which is usually released after a chancellor has delivered their budget statement to MPs in the House of Commons, included growth forecasts and the extent of tax rises. It said the UK economy will grow more slowly over the next four years than had been predicted.
It also confirmed that Ms Reeves’s budget “raises taxes by amounts rising to £26 billion in 2029-30, through freezing personal tax thresholds and a host of smaller measures”.
Other personal tax changes include £4.7 billion through charging National Insurance on salary-sacrificed pension contributions, and £2.1 billion through increasing tax rates on dividends, property and savings income by two percentage points.
The annual property levy, which is most likely to affect homeowners in London where prices are highest, comes on top of council tax and would cost £2,500 for a home valued at £2 million to £2.5 million, rising to £7,500 for a property worth above £5 million.
What's in the budget
- Freeze in income tax thresholds results in 780,000 more basic-rate, 920,000 more higher-rate and 4,000 more additional rate payers
- National Insurance charged on salary-sacrificed pension contributions above annual £2,000 threshold
- Rates on property, savings and dividend income to rise by 2 percentage points
- Electric cars hit with 3p per mile tax from April 2028
- Two-child benefit cap is removed, costing £3bn
- 5p cut in fuel duty is retained until September 2026
- Debt to rise from 95 per cent of GDP to 96.1 per cent by the end of the decade
Nigel Green, chief executive of investment firm deVere Group, said the budget would “drive an exodus of wealth from Britain”, a trend which has seen thousands of wealthy individuals relocating to countries such as the UAE.
He said that for advisers working with internationally mobile clients, the “trajectory is unmistakable” and is the type of structural change that triggers relocation planning.
High-end buyers were already questioning whether the UK remains one of the world’s most stable property markets, he said.
“A new levy on higher-value homes signals a government willing to target assets whenever revenue is needed. That is enough to shift investment strategies away from the UK.”
Markets, advisers and globally mobile clients now have “clear evidence of where this government intends to extract revenue”, he said, warning the implications were “already reverberating through the wealth sector”.
It reveals a government that “places the heaviest load on those with the greatest mobility”.
“That is how a wealth exodus from Britain begins. It will not be loud at first. It will be systematic, rational and global,” he said.
Wealth management firm Evelyn Partners said there could be widespread implications for the property market in the south-east of England, suggesting transactions could surge before the surcharge kicks in and sellers try to price properties below the threshold.
It compared the move to the introduction of the 19th Century "window tax" which judged the value of properties based on the number of windows. It resulted in owners bricking up windows to reduce their value and in the term "daylight robbery".
David Little, the firm's partner in financial planning, said cynics could argue that it was a sop to those Labour backbenchers and trade unionists who had been calling for a wealth tax.
“All this demonstrates the administrative difficulty of valuing properties, of setting wealth tax levels, and also shows the unexpected and extreme lengths that people will go to mitigate tax, especially where it is regarded as unfair or arbitrary.
“It is very often the case that behavioural responses mean tax rises result in less revenue than expected, while causing other sometimes unexpected market distortions, and we suspect that could well be the case here.”
Estate agents also questioned who would be impacted by the tax. Jo Eccles, founder and managing director of prime central London buying agency Eccord, said the “continued pursuit of those with wealth is deeply damaging and counterproductive”.
“It doesn’t just impact the ultra-wealthy who are highly mobile and now have another reason to move elsewhere, at a significant loss to the UK economy,” she warned. “With the threshold set at £2 million, this measure directly impacts London’s upper-middle classes – who are typically households with mortgages and finite resources.
"Their outgoings can only stretch so far. Sentiment and morale are being pushed even lower, and many of them no longer view the UK as a place for prosperity where hard work and success are encouraged.
“One city professional told me recently that VAT on school fees alone is costing him an extra £700 a month, and if a mansion tax is added on top he will move to Switzerland. For many like him, this will be the final straw.”
However, Will Watson, Head of The Buying Solution said the budget had brought clarity and he was already receiving messages that deals could go ahead.
“For our clients buying properties at £5million or above generally a £7,500 tax a year (the maximum payable) will not deter them, for them relatively it is stomach-able.
Becky Fatemi, Executive Partner at Sotheby’s International Realty UK, said: “A tax sold as a hit on ‘mansions’ will actually be felt most by people living in perfectly normal London houses that happen to be worth £2 million. They are the ones who will feel an extra £2,500, not the ultra-rich.”
Dominic Agace, chief executive of estate agents Winkworth, said: “In London, this is a terrace tax, not a mansion tax. Many £2 million-plus properties are likely to be terraced family homes.
“Many people living in London in £2 million-plus homes are those who are leveraged with large mortgages or those with their property as their only asset and living on a small retirement income.”
He said that combined with extra council taxes for second-home owners which have already been introduced in some areas, it was “another move by the government that will keep international buyers away from the capital and for those already here to sell up”.
The move would create a bouyant marked for homes valued just below the £2 million threshold, according to Jennie Hancock, founder and director of West Sussex buying agency Property Acquisitions.
She said: “Properties priced between £2 million to £4 million are already struggling. I’m seeing discounts of as much as 25 per cent for beautiful country houses that buyers would have been queuing up for just three or four years ago.
"Even with significant price cuts, there’s very little genuine interest. I expect this to worsen, creating a two-tiered market in which demand for higher-value properties falls even further, while the £1 million to £1.7million price bracket becomes more buoyant.”
Jason Tebb, President of OnTheMarket, said it would hit London and the south east of England hardest, where 80 per cent of homes worth more than £2 million sit. "The market now faces distorted buyer behaviour, price stagnation at the top end, and a ripple effect across the wider market. Ironically, it could even undermine the very tax revenue it aims to raise as transactions drop in response.
“Those who will be hit hardest are retirees or long-term owners who bought their homes decades ago. Their property value may have doubled or trebled, but their pension income has not. They could now be facing tax bills that exceed their disposable income."
