Tens of thousands of homeowners in England whose properties are valued above £2 million will face a new annual surcharge of at least £2,500 from 2028, under a measure widely being described as a “mansion tax”. The charge will be added on top of existing council tax bills and will rise according to four valuation bands.
Properties between £2m and £2.5m will fall into the lowest band, while the highest tier will apply to homes worth £5m or more, whose owners will pay £7,500 a year. The majority of affected properties are located in London, where high-value homes are concentrated.
Government Expects the Tax to Raise £400m a Year
The Office for Budget Responsibility (OBR), whose assessment was released early by mistake ahead of the Budget, estimates the surcharge will raise around £400 million a year by 2029–30.
Formally named the High Value Council Tax Surcharge, the measure is part of a broader package of tax rises introduced in Chancellor Rachel Reeves’ Budget to ensure the government meets its strict fiscal rules. The Treasury maintains that fewer than 1% of homes in England will be affected.
Industry Reaction and Expected Impact on the Housing Market
Estate agent Savills said the surcharge was “probably the least worst outcome” for owners of prime property, arguing it is far less damaging than a broader, open-ended mansion tax.
Savills expects the announcement to bring clarity to the housing market, predicting that certainty could lead to an increase in high-value transactions and encourage older homeowners to downsize.
Despite being collected on top of council tax, revenue will be directed to the Treasury rather than local councils.
OBR Warns the Tax Could Influence House Prices
The OBR expects the surcharge to impact property valuations, noting the likelihood of “price bunching” just below the band thresholds. This refers to the incentive to keep valuations marginally below the level at which the surcharge applies, thereby reducing the number of eligible properties and lowering overall revenue.
The valuation thresholds will rise in line with inflation, but the watchdog has warned that costings for the new measure come with a “high degree of uncertainty”.
Homes to Be Valued in 2026 Amid Calls for Council Tax Reform
Properties will be assessed using 2026 valuations from the government’s Valuation Office Agency (VOA). The introduction of the surcharge comes at a time when campaigners, think tanks and local authorities are urging comprehensive reform of the council tax system, which is still based on 1991 property values.
The Institute for Fiscal Studies recently argued in its Green Budget that a full revaluation of council tax bands is “long overdue”, saying the current system no longer reflects modern housing or market conditions.
Debates over property taxes have intensified as the government seeks new revenue sources without raising income tax or VAT. High-value property surcharges have been discussed for years, but previous governments shelved proposals over fears of hitting London’s housing market. With rising pressures on public finances, the Reeves Budget marks the first major overhaul aimed at capturing more revenue from England’s most expensive homes.
