Treasury estimate suggests new levy will reduce prices at the top end of the market
A new council tax surcharge on high-value properties is set to reduce affected house prices by an average of 2.5%, the Treasury has admitted.
The impact would equate to around £50,000 on a £2 million home and £125,000 on a £5 million property, raising concerns about lost equity for homeowners at the top end of the market.
The policy, widely described as a form of “mansion tax”, is set to apply to a small proportion of high-value homes but could have broader implications for prime and super-prime housing activity, particularly in London. For lenders, any sustained price adjustment near band thresholds may influence loan-to-value ratios, refinancing plans and high-net-worth lending strategies.
According to a report by The Telegraph, the Treasury estimate emerged in response to a parliamentary question from James Cleverly, shadow housing minister, who asked what assessment had been made of the potential impact of the new council tax surcharge bands on property prices at the thresholds of each band.
Dan Tomlinson, Treasury minister, replied that “the policy costing for the surcharge assumes an average price impact on affected properties of 2.5% with greater effects around the band thresholds.”
Earlier, Cleverly criticised the measure, saying it would erode household wealth. “Labour’s new family homes tax is an attack on aspiration,” he stressed. “It punishes people who have worked hard, saved hard and invested well to fund a welfare splurge for people who don’t work at all.
“We have forced Labour to admit this tax will also hit property prices, leaving homeowners tens of thousands of pounds down in lost equity, compounding the tax surcharge.”
Savills has warned that a 2.5% decline in prices at the top of the market could reduce stamp duty receipts by £73 million, raising questions over whether the surcharge will achieve its intended fiscal outcome. The latest government figures show overall land tax receipts rose by 23% this year to £18.2 billion, with stamp duty paid on homes over £2 million totalling £2.2 billion in 2024-25.
London is expected to bear the greatest impact, as it has the highest concentration of £1 million-plus homes and a large share of properties above the surcharge thresholds. Any clustering of valuations just below key bands could influence pricing behaviour in prime and super-prime postcodes, and may shape how surveyors and valuers approach borderline cases.
In his response to Cleverly, Tomlinson cited the latest outlook from the Office for Budget Responsibility (OBR). “In its recent economic and fiscal outlook, the independent Office for Budget Responsibility forecast that house prices will rise every year, growing by ‘just under 3% in 2025 and averaging 2.5% annual growth from 2026.’”
On those projections, nominal prices for properties above £2 million may continue to rise in aggregate, but the surcharge is still expected to leave affected homes below where they would otherwise have been, and could amount to a real-terms fall once inflation is taken into account.
Defending the reforms, a Treasury spokesman said they were aimed at addressing perceived imbalances in the current system. “We are reforming property taxes so a £10 million Westminster mansion doesn’t pay less than a typical family home in England. Fewer than 1% of properties are affected – this targets only the very highest-value homes, not ordinary families.”
For mortgage professionals, the changes may prompt closer scrutiny of valuations near band edges, potential shifts in demand for high-value borrowing, and renewed attention to how tax policy interacts with pricing in the prime and super-prime segments.
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