Mansion Tax: What property owners need to know

Is there any good news for property owners in the budget?

Yes and No.

Yes because there hasn’t been a hike in stamp duty land tax or the introduction of a sales tax. Both of which were suggested prior to the budget.

No if you are the owner of a property worth over £2m. You will from April 2028 be required to pay a ‘Mansion Tax’.

What is the Mansion Tax?

The budget announced yesterday that there would be a so called ‘mansion tax’ which affects properties in England valued at over £2 million.

The tax will be imposed as follows:

• Properties valued from £2m to £2.5m will pay £2,500
• Properties valued from £2.5m to £3.5m will pay £3,500
• Properties valued from £3.5m to £5m will pay £5,000
• Properties valued at more than £5m will pay £7,500

The tax will be charged on top of council tax however the money will go to the Treasury rather than to the local authority.

When will it be paid?

It will be paid annually and will come on top of existing council tax.

When will it take effect?

It will come into effect in April 2028 and properties will be assessed based on 2026 valuations provided by the Government’s Valuation Office Agency.

What about Stamp Duty Land Tax?

We saw no changes to the Stamp Duty Land Tax (SDLT) regime. There was talk of either abolishment entirely or reforming it so that a sales tax would be placed on sellers instead of buyers. Buyers currently pay SDLT when they purchase a property.

Why is it called the Mansion Tax?

The idea is that it only affects properties over £2m. One could say the definition of mansion is up for debate. Many properties at this value in the South East and London are largely not what you would consider ‘mansions’ but the message is clear – it is trying to target the wealthiest in society.

There will be cases of people who own the so called mansions who are ‘asset rich’ and therefore may not have cash or equity elsewhere, where the property may be all they own.

It is unclear whether there would be an exemptions from this and how the Government would go about enforcing it, but one would assume in the same way as if council tax goes unpaid.

An example will be of someone who purchased decades ago and their property has simply gone up dramatically in value since they purchased.

There will be other examples of people who have been able to live in their very valuable homes with largely the same overheads and lifestyles as those who own lower value properties.

The value of home ownership in the UK

One of the reasons home ownership in the UK is so sought after is that once you are mortgage free, you own that asset forever (unless it is a leasehold property where you have a long lease).

You don’t need to have an income or access to funds, to qualify your ownership of that asset. You have the security, apart from household bills, of living in your home for the rest of your life come what may.

One could take a cynical view and see this as the start of the breakdown of that system. Are we stepping towards other international systems where you do need to be able to fund an annual tax based on your property value? Could we see a lowering of that £2m in budgets to come?

An annual tax on property was suggested pre budget and is what many in the property industry feared but has not come to fruition. The impact of that I think would see the goal of home ownership less desirable, particularly for the younger generation, but also would likely see many families who were perhaps already stretched stay in their lower value homes or not undertake works to increase their value.  

The opinion overall seems to be that this change is a light touch and isn’t going to have a dramatic impact on our current system. It will impact the decision making for high net worth individuals, but probably on the price if one were to be purchasing at the lower end of the ‘mansion tax’ scale and so this will impact the values of those properties.