Eamon Shahir, founding father of Taxd
The Autumn Price range is creeping nearer, and with it, the probability of tax rises. Precisely which taxes are set to extend stays to be seen, however one rumoured levy is a “mansion tax”. If introduced, this tax would have an effect on 150,000 owners, largely within the South East of England. Almost definitely, if this tax was introduced in, it could be a 1% tax on the portion of the property’s worth above £2 million.
Pitfalls of mansion tax
Though a mansion tax would enhance tax income for the federal government, it might doubtlessly deliver a bunch of recent challenges.
In among the costliest postcodes, the tax might depress costs as brokers regulate listings to remain under the restrict, making a ripple impact that impacts properties beneath it and dangers stagnating the market. For these trying to promote their property, this might imply that they lose cash on their investments. Equally, for property brokers working with high-end properties, this tax might injury their enterprise prospects as properties lose worth.
Notably in London, mansion tax additionally has the potential to exacerbate the continuing home disaster. If rich persons are discouraged from shopping for properties value over £2 million, they may seemingly have a look at properties within the vary of £1 million to £2 million. Clearly, this may make these homes simpler to promote however would additionally enhance competitiveness and create points all through the market.
Furthermore, mansion tax ignores the realities of the housing market. In lots of areas, home costs have risen sharply so a household residence purchased just a few a long time in the past on a comparatively modest wage might now be topic to mansion tax. This doesn’t take into consideration the truth of this household’s wealth. Simply because they’ve a home in a now-desirable space, doesn’t imply that they may have excessive incomes or the means to pay further taxes. Usually, they’re older folks residing on pensions in household houses they’ve owned for many years. If these folks have been to be taxed on a share of their property worth, they may very well be pushed out of their residence and compelled to relocate to a less expensive space.
One other cliff-edge tax…
Like revenue tax, mansion tax would perform as a cliff-edge, which is activated as soon as a home worth passes the £2 million threshold. That is basically flawed because it punishes rich folks for being profitable and for spending their cash on UK property.
Not solely this, however people who find themselves topic to the mansion tax have additionally already paid the next price of Stamp Obligation. To purchase a £2 million home, even first-time consumers may have paid greater than £150k Stamp Obligation. Subsequently, including mansion tax to properties which have already been topic to greater charges of Stamp Obligation might put some folks off investing in property altogether.
Pushing wealth overseas
In 2025, Henley and Companions predicted that as many as 16,500 millionaires will depart the UK in quest of extra beneficial tax environments and the mansion tax might additional incentivise rich folks to maneuver their property overseas.
Mixed with the tip of the non-dom scheme, many worldwide high-net-worth people (HNWIs) might take the introduction of mansion tax as their cue to promote their UK property property altogether. This might create difficulties for actual property brokers who might wrestle to promote these prime, luxurious properties.
Fairer choices
So what are the higher choices as an alternative of a mansion tax?
Somewhat than a cliff-edge tax that kicks in above a single threshold, a sliding scale utilized extra broadly can be extra wise and honest. It might additionally keep away from distorting the market by ensuring houses successfully unsellable.
Higher nonetheless, Chancellor Rachel Reeves might depart property taxes alone and as an alternative concentrate on areas like taxing world social media giants that revenue from UK customers, or clamping down on large-scale tax avoidance. Each measures would seemingly be in style with voters, boosting income with out penalising wealth or including strain on working households.
