Reeves’ Mansion Tax: Update

Following our Reeves mansion tax news item on 24 November 2025 we now have the outline of the new mansion tax proposed by Rachel Reeves in her Budget on 26 November 2025. This is what we know so far.

Labour’s Mansion Tax

The new tax on mansions will be known as the High Value Council Tax Surcharge or HVCTS for short. This new tax will apply to owners of residential properties (note: not occupiers) that were worth at least £2m in 2026 and the tax will take effect from April 2028.

The government intends to conduct a public consultation on the details of the new tax in early 2026 but this will be mainly about how to allow those who would suffer financial hardship from paying the tax to defer payment of the tax until the earlier of sale or their death. An interest charge on any deferred tax will no doubt apply and this is likely to be the same as the current interest charge on underpaid tax of 8% per annum.

Will the Mansion Tax Replace Council Tax?

No, the new mansion tax will be charged on top of the existing council tax. The government has said that social housing will not be caught by the mansion tax even if it is worth £2m or more.

How Much Is the Mansion Tax?

Homes worth £2m or more will be put into bands by the Valuation Office and charged as follows:

Homes worth £2m or more will be put into bands by the Valuation Office and charged as follows:The Valuation Office will carry out property revaluations every five years and the amounts of the tax charge will be increased by CPI each year from 2029/30. Surveyors and property valuers must already be recruiting on the basis of the likely number of challenges that will be made to the official valuations.

Who Will Charge the New Mansion Tax?

Local authorities will levy the new mansion tax alongside council tax and it is to be hoped that taxpayers can pay the mansion tax by 10 monthly interest free instalments as with council tax.

Will there be any Exemptions from the Mansion tax?

The 2026 consultation will refer to what the government is calling a “full set of reliefs and exemptions” as well as the proposed ways in which companies, partnerships, trusts and funds who own “mansions” will be dealt with. The government has also said that the consultation will also address the position of people who are required to live in a property as a condition of their job. However, as the new tax is on owners and not occupiers it is at first sight, hard to understand how people who merely live in a tied property will be affected.

Any Initial Thoughts?

Yes, as predicted the effect of the new mansion tax on property values is anecdotally already being noticed by prospective sellers of “mansions” and estate agents who are pointing to the likely “bunching effect” of homes for sale just below each value threshold and also to property valuations being reduced to reflect the new tax bands.

These “down valuations” will ripple down the housing market like waves on a pond and over time even modestly priced homes will suffer a reduction in value given that all property values are relative to what other properties above are valued at.

Also, property as an asset class will be that much less attractive relative to other forms of investment and wealth storage. This is obvious with second homes worth £2m or more which are already liable to CGT and cost their buyer up to 17% to SDLT to acquire, or 19% in the case of a non-UK resident buyer, and which from 2028 will incur the new annual mansion tax.

This in turn will have a negative impact on all the activities that surround expensive homes such as refurbishment, repairs and maintenance, estate agents, fittings and furnishings and so on which will lead to a reduction in the associated tax receipts and thereby mean that the mansion tax will to an extent simply cannibalise other tax receipts. After all, investing in shares, crypto or super cars for example becomes that much more attractive compared with expensive mansions and these assets involve minimal taxable activity by comparison with real estate investment.

Conclusion

Reeves Mansion Tax is a brave idea and the timing of its introduction is interesting being quite close to the date in 2029 when the next general election must be held. Perhaps Labour think they have set a trap for any other parties that would like to campaign on its abolition? Time will tell.