Non-resident owners of properties liable for the UK’s new mansion tax could be forced to pay a higher rate under government plans.
A Treasury consultation asks whether an additional premium should be added to the high value council tax surcharge, set to be introduced in England from April 2028, for international owners.
The new tax will be applied to properties valued at more than £2 million ($2.6 million), around 1 per cent of homes in England. Owners would be expected to pay £2,500 a year for properties worth £2 million to £2.5 million, and £3,500 for properties worth up to £3.5 million. Properties between £3.5 million and £5 million would accrue a charge of £5,000 annually, while those worth more than £5 million would face a £7,500 levy. The surcharge is separate to the council tax and would rise annually with inflation.
However, in launching its consultation, the government said that in “high-pressure housing markets”, particularly in London, “there is interest in understanding whether demand from non-UK resident owners may be contributing to pressures on housing availability and prices”.
On that basis, the government is exploring whether there is a case for an additional premium to be added for owners of homes liable to the mansion tax. It has asked for evidence that the housing market is being impacted by non-UK resident owners, whether they should be charged a premium and what the potential impact would be.
The government has not set out how much extra international owners would be expected to pay.
The premium would not be expected to apply to non-British citizens who were resident in the UK for tax purposes.
Between 25 per cent and 35 per cent of the 165,000 homes estimated to be valued at more than £2 million in Britain are foreign-owned, according to the Land Registry of overseas entities.
The move is expected to be welcomed by campaigners who argue that house prices in expensive parts of London, such as Mayfair and Knightsbridge, have become even more inflated due to the number of second home or investment properties, which the owners rarely visit, with the areas becoming ghost towns in the process.
However, many who have moved to the Middle East, the UAE in particular, have retained property in the UK despite setting up lives abroad. Even if the properties are rented out, owners are liable for the new tax.
executive partner at UK Sotheby’s International Realty
The government argues that the tax is needed to ensure the owners of the most valuable properties “pay their fair share”, pointing out that disparities in the council tax system charged by local authorities could mean that a £10 million home in Mayfair could accrue council tax of £2,100, while a property in northern towns, such as Darlington or Blackpool, worth £400,000 pay £2,400 to £2,600 annually.
The mansion tax is forecast to raise around £430 million per year for the Treasury, which is intended to pay for improved UK government services.
Other elements of the consultation include the option for payments to be deferred until after an owner has died if their income is below £35,000 or have savings lower than £16,000.
Opponents of the scheme have argued that some owners of high-value properties may have low incomes, for example if they received the house through inheritance or had simply owned it for decades and had seen its value skyrocket.
Others argue that in places such as London, £2 million homes are not mansions but could easily be classed as a “terrace tax”.
Becky Fatemi, executive partner at UK Sotheby’s International Realty, said the nuts and bolts of how the tax could work revealed an extraordinary level of short-sightedness.
“In London, a £2 million home no longer automatically means extraordinary wealth, yet the government still talks about that figure as though it applies only to billionaires,” she said. “In reality, across huge parts of the capital, it can simply be a long-owned family house or one that has been passed down through generations. The danger is that politicians are designing a tax around headlines rather than reality, dragging far more ordinary London households into the net than they seem willing to admit.
“The real alarm buried within the consultation is that the government is also open to exploring an additional tax specifically for overseas owners on top of the mansion tax itself,” Ms Fatemi added. “After years of stamp duty hikes, non-dom changes and relentless increases in the cost of buying and owning property in Britain, it feels like yet another nail in the coffin for prime central London and international buyers.
“London did not become one of the world’s great wealth capitals by making global investors feel unwelcome,” she said. “These buyers invest billions into the economy and support huge numbers of jobs across construction, design, retail, hospitality and professional services. At a time when countries and cities around the world are actively competing to attract wealth, Britain appears to be doing the opposite.”
Sarah Coles, head of personal finance at AJ Bell, said “posh properties” were set to become “piggy banks” for the government when the tax kicks in. “This additional tax could have a knock-on impact on the property market and damage demand for more expensive homes,” she said.
“The cost won’t break the bank for those on high incomes living in expensive properties and sitting on significant liquid assets. It’s why it appeals to politicians arguing that those with the broadest shoulders should carry a heavier burden.
“However, not everyone who owns a £2 million property is in this position. For those in expensive homes but on lower incomes and holding fewer assets, the charge is going to be more painful.”
Regarding the increased premium for non-resident owners, Ms Coles said: “This could have a more significant impact on property demand in places with more international buyers, and could mean expensive London mansions take a hit.
“There will be plenty of people breaking out the world’s smallest violins for those in expensive homes. However, it could also cause problems for those who are cash poor. They may decide to bring forward any downsizing plans and then may struggle to sell before the charge kicks in.”
Speaking to The National when the plan was announced in October’s Budget, Nigel Green, chief executive of financial services firm deVere Group, said high-end buyers were already questioning whether the UK remains one of the world’s most stable property markets.
“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,” he said.
Wealth management firm Evelyn Partners said there could be widespread implications for the property market in south-east 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 they had. It resulted in owners bricking up windows to reduce their value and coined the term “daylight robbery”.
