Exit tax! Mansion Tax! Council Tax! So many choices...
Every day there’s a new headline predicting what early Christmas present Chancellor Rachel Reeves is going to bestow on the electorate - but her reportedly favourite choice (this week, anyway) is to increase the tax burden on owners of expensive homes, with officials leaning towards creating new higher council tax bands rather than a fully fledged “mansion tax”.
The measure is being discussed as part of the November 26 Budget, with Treasury insiders describing it as the “least worst option” for raising several billion pounds without triggering a political backlash.
Sources close to the chancellor say the guiding principle behind the decision-making is “administrative simplicity”. A system based on existing council tax structures is seen as more practical than introducing an entirely new levy or applying capital gains tax to main residences. The idea of new top bands has circulated in the Treasury since 2012, when George Osborne explored similar reforms.
Property market experts say the approach could prove less disruptive than other forms of wealth taxation. Lucian Cook of Savills noted that additional council tax bands “would potentially be less damaging than a pure mansion tax or bringing high-value homes into capital gains tax.” Knight Frank’s Tom Bill added that an annual charge is “less likely to freeze the market” than transaction-based taxes, though he acknowledged that prices might need to “reprice” in the short term.
The potential reform could see the two highest council tax bands doubled, which the Institute for Fiscal Studies estimates could raise about £4.2 billion a year. Other possibilities include a targeted revaluation of the most expensive homes and a supplementary surcharge on properties above a certain value. Analysts estimate that such changes would bring in only a fraction of the £30 billion Reeves is expected to find through tax rises and spending restraint, but the symbolism may prove politically useful.
For the property sector, the stakes are clear. Rumours of a “mansion tax” have already chilled demand at the upper end of the market, with Knight Frank reporting a 4 per cent annual fall in prime London property prices. The mere suggestion of fresh charges has seen buyers delay completions and sellers moderate their expectations, while demand for luxury rentals has risen sharply.
Some in the industry argue that reform is overdue. Michael Sherwood, the former Goldman Sachs banker, told the Financial Times that council tax was “very unfair”, adding that wealthier homeowners “should pay more”. The challenge for Reeves will be balancing political optics with economic consequences. A broad revaluation of property, long urged by economists, remains unlikely; she has previously dismissed it as not “where I’m going to put my political energy.”
Market analysts warn that higher council tax on large homes could encourage downsizing among retirees and add modest downward pressure on prices. Dominic Agace of Winkworth told the FT that the measure “could mean an increased number of bigger properties coming to market”. Yet compared with other ideas—such as taxing capital gains on primary residences or imposing a 1 per cent annual levy on homes worth over £2 million—the plan is regarded by many as the least disruptive route.
As one senior Treasury source put it, the aim is to “show everyone is paying their fair share” while keeping the system workable. For mortgage brokers and property professionals, clarity on this front cannot come soon enough. Whether Reeves opts for reform or restraint, the next Budget will decide how Britain’s housing market recalibrates to a new era of fiscal realism.
Exit tax: shutting the stable door?
Among the ideas circulating in the Treasury is an “exit tax” aimed at wealthy individuals who move their assets abroad. According to recent reports, it could impose a 20 per cent levy on unrealised business gains when a person changes tax residence — a measure modelled on schemes already used in parts of continental Europe.
But as City A.M. recently highlighted, the signs suggest that many of those who might have been affected have already left. Luxury car registrations have slumped, with sales of brands such as Ferrari, Bentley and Rolls-Royce falling sharply in Britain this year. Ferrari has even reduced allocations to the UK after demand waned, while Aston Martin’s latest results showed domestic volumes down by nearly a third.
The decline in the market for supercars — long seen as a barometer of the wealthier classes’ confidence — adds weight to suggestions that the exodus of the ultra-rich is well under way. For Rachel Reeves, that raises a sobering question: will an exit tax raise meaningful revenue, or simply underline that Britain’s wealth has already exited?
