On 26th November, the Budget saw the introduction of a new 'Mansion Tax' - a council tax surcharge ranging from £2,500 to £7,500 annually, on properties worth over £2m from 2028 onwards.
The charges will not be based on the most recent purchase price, rather they will be based on new valuations undertaken by the Valuation Office. These values will then be used to sort properties into four bands. Those worth £2 million to £2.5 million will pay £2,500, while those worth £5 million or more will pay £7,500, which is expected to boost government funds by around £400 million by 2031, according to forecasts by the Office for Budget Responsibility.
Here, Richard Freshwater, Director at Cheffins in Cambridge, gives his reaction on how this new tax will affect the property market.
"For years, residential property has been an easy target for governments looking to line the coffers and Reeves had no choice but to introduce a tax which was aimed at the wealthiest members of society. The so-called ‘Mansion Tax’, the increase in council tax on homes worth £2 million or more, will almost certainly cause a slowdown at the very top end and this will ripple downwards and affect the pace of activity across the wider market. It is likely to also cause a pinch point for deals at the £2 million mark. However, as the tax changes are nowhere near as ferocious as first expected, I believe we will now see an uptick in activity throughout the rest of the market. Yes, this announcement will affect the asset rich and cash poor members of society, perhaps those who have inherited a house at over the £2m mark, however, it is difficult to argue that local authorities were not in need of an urgent cash injection.
There’s no question that activity has slowed in recent weeks as buyers and sellers waited for clarity. Now that the Budget is out, we should see confidence return and the market begin to move again. Rightmove reports that one in five homeowners have been holding back decisions until today, and as the fluctuations of the property industry have become increasingly aligned with the wider political landscape in recent years, I would hope that we will now see a new lease of life for the majority of buyers and sellers. With new rules on inheritance tax, gifting and the removal of the residence nil-rate band, we may also see a wave of downsizers bringing high-value homes to the market.
Rachel Reeves’ long-awaited Budget has stopped short of the sweeping tax reforms many feared would freeze the housing market overnight. Earlier announcements suggested a major overhaul of the stamp duty system and Capital Gains Taxes on higher value homes, however, what has been announced today, at this point, appears to be far more restrained. While corporates, pension funds and the agricultural sector have taken a noticeable hit, the property market has emerged relatively unscathed.”
Also in the Budget, the Chancellor revealed plans to raise the basic rate of income tax for landlords by 2%. From April 2027, the property basic rate will be 22%, the property higher rate will be 42% and the property additional rate will be 47%. This comes as another sanction on the incomes received by landlords in the private rented sector.
Sarah Bush, Head of Residential at Cheffins gives her reaction:
“Reeves’ new levy for landlords is yet another blow to the private rented sector. What the government seems to overlook is that not all landlords are the multi-property owning, profit-driven investors who have tarnished the sector’s reputation. Many are small-scale or accidental landlords, individuals who chose to invest in property rather than savings accounts during times of strong capital growth and steady rental returns. These are people who may have inherited a property or two, or those who saw property as a more reliable long-term investment than a pension fund.
The government now needs to give the private rented sector a break. In reality, the Renters Rights Act shouldn’t impact the responsible landlords who look after their properties and their tenants, and we are working closely with our clients to ensure they are all fully up to date and compliant. We can only hope that the government will eventually see the importance of the private rented sector, and those small-scale landlords out there who provide an essential service for tenants across the country.”
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