Eamon Shahir, founding father of Taxd
The Autumn Funds is creeping nearer, and with it, the chance 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 householders, largely within the South East of England. Probably, if this tax was introduced in, it will 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 probably deliver a bunch of latest challenges.
In among the costliest postcodes, the tax might depress costs as brokers modify listings to remain beneath the restrict, making a ripple impact that impacts properties beneath it and dangers stagnating the market. For these seeking 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.
Significantly 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 are going to doubtless have a look at properties within the vary of £1 million to £2 million. Clearly, this might 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 dwelling purchased a couple of a long time in the past on a comparatively modest wage might now be topic to mansion tax. This doesn’t bear in mind the truth of this household’s wealth. Simply because they’ve a home in a now-desirable space, doesn’t imply that they are going to have excessive incomes or the means to pay extra taxes. Usually, they’re older individuals dwelling on pensions in household properties they’ve owned for many years. If these individuals have been to be taxed on a share of their property worth, they could possibly be pushed out of their dwelling and compelled to relocate to a less expensive space.
One other cliff-edge tax…
Like earnings 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 essentially flawed because it punishes rich individuals 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 a better price of Stamp Obligation. To purchase a £2 million home, even first-time patrons may have paid greater than £150k Stamp Obligation. Subsequently, including mansion tax to properties which have already been topic to increased charges of Stamp Obligation might put some individuals off investing in property altogether.
Pushing wealth overseas
In 2025, Henley and Companions predicted that as many as 16,500 millionaires will go away the UK looking for extra beneficial tax environments and the mansion tax might additional incentivise rich individuals to maneuver their belongings 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 belongings 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?
Slightly than a cliff-edge tax that kicks in above a single threshold, a sliding scale utilized extra broadly could be extra wise and honest. It will additionally keep away from distorting the market by ensuring properties successfully unsellable.
Higher nonetheless, Chancellor Rachel Reeves might go away property taxes alone and as an alternative deal with areas like taxing world social media giants that revenue from UK customers, or clamping down on large-scale tax avoidance. Each measures would doubtless be standard with voters, boosting income with out penalising wealth or including stress on working households.
