Why the mansion tax could freeze the prime market

The government's mansion tax announcement may have landed with the weight of policy certainty, but mortgage professionals are grappling with a more troubling question: is this a fiscally sound measure, or a politically convenient one?

From April 2028, homeowners with properties valued above £2 million will face an annual levy ranging from £2,500 to £7,500, depending on valuation bands. It's a flagship policy aimed at raising £400-£450 million by 2031. But for brokers, estate agents, and financial advisers on the ground, the announcement has sparked something closer to alarm than relief.

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Nick Leeming, pictured above left, Chairman of Jackson-Stops, cuts to the heart of the tension: "A decision has been made for politics, not economics." And it's a distinction that matters enormously for how the market will respond over the next three years.

Jo Eccles, pictured above right, founder and Managing Director of Eccord, a prime central London buying agency, frames the policy more broadly: "The continued pursuit of those with wealth is deeply damaging and counterproductive. It doesn't just impact the ultra-wealthy who are highly mobile and now have another reason to move elsewhere, at a significant loss to the UK economy."

"One city professional told me recently that VAT on school fees alone is costing him an extra £700 a month, and if a mansion tax is added on top he will move to Switzerland. For many like him, this will be the final straw."

A regional timebomb

The first and most obvious concern is geographic. This isn't a policy that will land evenly across the country. Jason Tebb, President of OnTheMarket, is blunt: "This will hit London and the South East hardest, where 80% of £2m+ homes sit."

That concentration creates a fundamental problem: a £2 million property in central London is fundamentally different from one in Manchester or Newcastle—yet the tax treats them identically. In regions where property values have inflated over decades due to chronic undersupply and migration pressures, the threshold feels arbitrary and punitive.

Nick Leeming, Chairman of Jackson-Stops, puts it plainly: "A £2m threshold is arguably too low for these regions where a single blanket threshold fails to recognise regional nuances." The result is that those in the South East will shoulder a disproportionate burden relative to their peers elsewhere in the country, and that regional inequality will distort the market.

The "cliff-edge" effect

Perhaps more concerning than the regional skew is what brokers are already predicting: a dramatic market distortion at the £2 million mark itself.

Eccles warns that the mansion tax could create a "cliff edge" at the £2m threshold, effectively freezing the prime market just above that level.

"We could see pressure on properties above those levels as sellers are forced to shoulder part of the burden by reducing their asking prices," he said.

This isn't just speculation. Jason Tebb points to historical precedent: "The market impact may well be a 'ceiling' effect just below the £2m mark with sellers forced to reduce asking prices to make the property attractive to buyers avoiding the surcharge. This was the effect of historic Stamp Duty 'ceilings' in which properties above £250k saw a straight jump from 1% to a 3% rate, so buyers were offering £249,999 on properties on the market for as much as £270k."

Rob Hillock, Head of Personal Financial Planning at Broadstone, echoes the concern: "The OBR notes in its comments that the reform could see price bunching below each of the four new price bands as homeowners look to minimise their tax liability."

In other words, expect prices to compress unnaturally just below each threshold—£2 million, £2.5 million, £3.5 million, and £5 million.

The implementation nightmare

Then there's the practical problem that may prove even more damaging than the policy's intent: who decides valuations, and how?

Current Council Tax bands are based on 1991 valuations. For properties worth £2 million or more, nobody has systematically revalued them for tax purposes in over 30 years. The Valuation Office Agency will have to do that now—and it will be contentious.

Jeremy Leaf, a north London estate agent and former RICS residential chairman, observes: "I wish the Government luck trying to re-value all those properties and dealing with the arguments around the 'pinch points'. As a result, the cost of the exercise could turn out to be higher than the extra sums making their way into Treasury coffers."

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Tebb goes further: "Current Council Tax bands remain based on valuations from the early 90s (1991). To implement this surcharge, the Valuation Office Agency must revalue high-end properties in the context of today's market. This is complex, subjective, and likely to lead to a massive spike in appeals and litigation from owners challenging their valuations to get under the £2 million threshold."

That's the real risk: implementation gridlock. By the time 2028 arrives, expect thousands of appeals, legal challenges, and administrative friction. The tax's revenue potential could evaporate in litigation costs.

The cash-poor problem

Beyond market mechanics, there's a human dimension that policy makers often overlook: asset-rich, cash-poor homeowners.

Many properties above £2 million are owned by long-term residents—retirees, inheritees, and households who bought decades ago when prices were a fraction of today's levels. Their wealth is locked in bricks and mortar, not bank accounts.

"Those who will be hit hardest are retirees or long-term owners who bought their homes decades ago," Tebb explains. "Their property value may have doubled or trebled, but their pension income has not. They could now be facing tax bills that exceed their disposable income."

For these households, an additional £7,500 annual charge isn't just a minor inconvenience. Some will be forced to downsize or sell while others may defer payment, accumulating debt against their property. Neither outcome is economically productive.

The deeper concern

What emerges from these professional assessments is a nagging concern: this policy may solve a political problem without addressing an economic one. Hiten Ganatra, Managing Director of Visionary Finance, sums it up: "It's been clear for years that the Council Tax bandings need revision, although such changes are a political hot potato. This is why successive Governments have kept with the status quo. Personally, I feel this has been handled in a clumsy way and rather than fair adjustments for all, hitting the higher value end of the market which is already suffering due to various recent policies like abolition of the non-domicile status and related inheritance tax changes has an effect on already thin confidence about wealth being held in the UK.

As the market waits for 2028, the real question isn't whether the mansion tax will raise £400-£450 million. It's whether the behavioural response of sellers relocating, buyers staying away, landlords restructuring, and valuations being challenged will ultimately cost the Treasury far more than it gains.