Sellers and buyers likely to strike deals just under new bands announced in Reeves tax gamble
The UK housing market could see a surge in properties being sold at prices just below the bands established in chancellor Rachel Reeves’ budget as wealthy homeowners grapple with the new so-called “mansion tax.”
That measure will see thousands of properties valued at over £2 million taxed with a surcharge of at least £2,500 starting in 2028 and could raise about £400 million annually by 2029-30, according to the Office for Budget Responsibility (OBR).
For properties valued at more than £5 million, that surcharge will jump to £7,500, with various bands in between.
But experts say it could lead to an uptick in a practice known as “price bunching,” in which buyers and sellers strike a deal at a price just shy of specific bands – or that £2 million mark – to avoid having to pay the levy.
‘Ceiling’ effect likely to emerge from Reeves plan
Budget documents indicate that would mean a £335 million property tax hit for the Treasury over the next three years, although a government official told the Financial Times any further impact on home prices will likely be “relatively modest”.
OnTheMarket president Jason Tebb also believes a “ceiling” effect just under £2 million will emerge as sellers trim their asking price to attract buyers.
“This was the effect of historic stamp duty ceilings in which properties above £250,000 saw a straight jump from 1% to 3%,” he said. “Buyers were offering £249,999 on properties on the market for as much as £270,000.”
Experts see a spike in valuation appeals ahead
Meanwhile, valuation appeals could also soar before that tax comes into play, potentially putting further pressure on the already strapped Valuations Office Agency (VOA).
It’s currently unclear how properties will be valued – and Reeves reportedly only hiked the minimum impacted value to £2 million after receiving pushback from Labour MPs on her initial £1.5 million proposal.
All homeowners impacted by the tax “will likely appeal at each bracket,” HomeOwners Alliance chief executive Paula Higgins told the FT.
The VOA’s latest annual report, issued in March, highlighted “increased demand on our services” amid a rise in homeowner challenges to council tax bandings. That strain could increase ahead of the new tax.
The impact of the new measure is likely to be most keenly felt in London and the Southeast, where the majority of those higher-value properties are located. In total, it’s expected to affect about 165,000 properties across the UK.
