Budget 2025: What is Rachel Reeves’s new ‘mansion tax’ and how will it work?

Rachel Reeves has confirmed at the Budget that a version of the much-speculated “mansion tax” will be introduced in the UK, placing a new charge on high-value properties.

Under the plans, owners of properties valued at over £2 million will soon begin paying a regular annual charge, which will be added to their existing council tax bill.

Beginning in April 2028, this will set homeowners back at least an extra £2,500, and £7,500 at most.

The property values will not be based on the last point of purchase, but rather on new valuations to be carried out by the Valuation Office. This will reflect their value in 2026.

These values will then be used to sort properties into one of four bands. Those worth £2 million to £2.5 million will have a surchage of £2,500; £2.5 to £3.5 million of £3,500; £3.5 to £5 million of £5,000; and those worth £5 million of £7,500.

The government has announced a consultation on the measures, meaning not all details are confirmed. Ms Reeves has said these will evaluate how a deferral scheme could work.

Previous reports had indicated homeowners would be able to defer the cost until they die or move house to avoid forcing them to sell up.

It has also not been revealed how the government will draw the line to decide which properties to revalue, but say that the Valuation Office’s revaluation programme will be “targeted” and recur every five years.

It had been floated before the Budget that it would be done by looking at only the 2.4 million properties in the top three council tax bands (F, G and H) across the UK.

The new surcharge will boost government funds by £400 million by 2031, the OBR forecasts, with Ms Reeves claiming it will be charged on less than the top one per cent of properties.

Unlike regular council tax, the surcharge will go to central government coffers, rather than to the local authorities in which they are charged.

It is the closest the chancellor has come to announcing a form of ‘wealth tax’ in the Budget, which political opponents on the left had called for in the build up to the event.

Those affected mostly reside in London and the South East, with around 90 per cent of the UK’s properties worth £2bn plus being located in or around Greater London.

While many have welcomed a mansion tax in some form, this new measure will certainly be considered one of the softer versions she could have chosen.

Furthermore, many economists had called on the chancellor to consider a complete overhaul of the property tax system, beginning with council tax, which still charges home owners based on valuations carried out in 1991.

Addressing some of the criticisms of this system, the Treasury said: “Under the current system, the average band D charge for a typical family home across England is £2,280. That is £250 more per year than a £10 million property in Mayfair, based on the band H charge in the City of Westminster, currently pays.

“This surcharge will change that, implementing a significant reform to improve fairness within England’s property tax system.”

Former IFS director Paul Johnson toldThe Independent last month that the government should reform taxes so that council tax is proportional to the current value of a property, whilst also scrapping stamp duty.

He added that a mansion tax on properties worth more than £2 million makes “some sense”, but he warned that it “wouldn’t raise anywhere near enough to fill a significant hole”.

“Such houses are definitely undertaxed at present,” he said. “I’d be much happier with a proper comprehensive reform of property taxes which made council tax proportional to current value and got rid of stamp duty.”