New property tax is 'deeply damaging and counterproductive'

Chancellor Rachel Reeves confirmed a new "mansion tax" in today's Autumn Budget, a move met with fury by many in the mortgage industry, particularly in London and the South East.

After a farcical start to proceedings, when the Office for Budget Responsibility (OBR) revealed the contents of the Budget before Reeves even began, a rowdy House of Commons heard how UK taxation is set to rise to an all-time high of 38 per cent of GDP by 2030-31.

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The headline measures to hit the mortgage market included a new tax on houses worth more than £2m from 2028. A high value council tax surcharge in England will mean an annual £2,500 charge for these properties, rising to £7,500 for properties worth more than £5m. This is expected to boost Government coffers by £400 million.

Reeves also announced plans to increase the basic and higher rate of tax on dividends, property and savings income by 2 percentage points, adding to the headache for landlords preparing for the implementation of the Renters' Rights Act next year.

Fears that Cash ISA limits would be slashed were allayed, albeit with a twist. The full £20,000 allowance will remain, but £8,000 of this will now be designated exclusively for investment purposes. Those over 65, however, will retain the full cash allowance of £20,000.

The bond market spent the speech digesting the detail; the yield on the benchmark 10-year gilt initially dropped from 4.5 per cent to about 4.42 per cent before rising and sliding again. A sense of relief that disaster seems to have been averted was the overriding emotion from traders.

However, feelings were strong when it came to the property tax hike. Jo Eccles, founder and managing director of prime central London buying agency Eccord, said the "Mansion Tax" and the pursuit of those with wealth is "deeply damaging and counterproductive."

She said: "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. With the threshold set at £2 million, this measure directly impacts London's upper-middle classes – typically households with mortgages and finite resources.

"Their outgoings can only stretch so far. Sentiment and morale are being pushed even lower, and many of them no longer view the UK as a place for prosperity where hard work and success are encouraged."

Jason Tebb, president of OnTheMarket, slammed the new tax on properties as likely to hit London and the South East hardest.

"The market is now being faced with distorted buyer behaviour, price stagnation at the top end and a ripple effect across the wider market," he told MI. "Ironically, it could even undermine the very tax revenue it aims to raise as transactions drop in response.

"Those who will be hit hardest are retirees or long-term owners who bought their homes decades ago. 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."

Tebb echoed the view of other industry members that a "ceiling" effect just below the £2 million mark could emerge, with sellers forced to reduce asking prices to attract buyers avoiding the surcharge. "This was the effect of historic Stamp Duty ceilings in which properties above £250,000 saw a straight jump from 1 per cent to 3 per cent," he said. "Buyers were offering £249,999 on properties on the market for as much as £270,000."

The Budget also raised affordability questions after Reeves announced that income tax thresholds will be frozen until the end of the 2030-31 financial year, bringing more people into higher brackets. The Government will hope this is offset by a planned increase in minimum wage.

The OBR expects inflation to reach 3.5 per cent this year – slightly higher than the forecaster estimated in March, when it predicted 3.2 per cent.