Chancellor Rachel Reeves is hoping to increase the tax take from homeowners by introducing a ‘mansion tax’ on properties worth more than £2m in England
In her second Budget as Chancellor, Rachel Reeves introduced a new property tax: the High Value Council Tax Surcharge. It has already been dubbed “the mansion tax“.
Owners of tens of thousands of homes in England, which are valued at more than £2m, will now be hit with an annual council tax surcharge of at least £2,500 from 2028. This tax will need to be paid on top of existing council tax payments and will increase depending on the value of the home.
There will be four separate bands for these higher-value homes. The lowest will include homes valued between £2m and £2.5m, while the highest rate of £7,500 a year will be charged to the owners of homes worth £5m or more.
The vast majority of homes where owners will be forced to pay Reeves’s new “mansion tax” are in London, a Labour stronghold. The Office for Budget Responsibility (OBR) estimates that this new property tax will raise around £400m a year for the Treasury in 2029-30.
Reeves celebrated her decision as she delivered her Budget, noting that people living in homes worth £5m could “afford it”. However, economists on both the left and the right will be disappointed that she did not overhaul Britain’s property tax system as a whole, which includes outdated council tax bands from 1991 plus the expensive and “regressive” stamp duty charges for buyers.
Even before yesterday’s Budget, the United Kingdom already had some of the highest in the world. Here’s how our property tax system compares to other countries.
UK
Unlike some other major economies, there is no single annual property tax in the UK. There are, however, a whole host of different levies which, combined, mean we have the highest property tax burden as a percentage of our gross domestic product (GDP) out of the world’s advanced economies at 3.7 per cent.
So, what are those taxes?
We have council tax, charged to anyone living in a home on an annual or monthly basis. This is calculated based on the value of a person’s home, but it’s a problematic tax because the valuations have not been updated since 1991. As a result, the increase in house prices that has occurred over the last 35 years or so is not captured.
Then there’s Stamp Duty. In Scotland, this is called the Land and Buildings Transaction Tax (LBTT). In Wales, it’s called the Land Transaction Tax (LTT). Either way, it’s a tax you pay when you buy a home, and it’s calculated as a proportion of the value of the property you’re purchasing.
There’s a good reason why Reeves did not scrap stamp duty in her Budget, despite lobbying from economists who argue that it has gummed up the housing market by penalising young people buying family-sized homes and discouraging older people from buying smaller retirement properties.
That is, simply, that it is very lucrative for the Treasury. Stamp duty on homes bought this tax year is set to top £11.5bn, according to the latest analysis by the OBR. Its predictions show tax on buying residential property in England and Northern Ireland will balloon to £19.7bn by 2030-31.
And that’s not all. There is also inheritance tax (IHT), which is paid if you inherit property after the death of a relative (or anyone else who leaves property to you in their will). This is paid on the value of a deceased person’s estate if it is worth above the tax-free threshold of £325,000.
And, finally, don’t forget capital gains tax (CGT). This is paid on the profit made when selling a property that is not your main home, such as a buy-to-let investment. It mostly affects landlords, who also pay tax on their rental income.
France
In France, there are two main levies. First, there is the taxe foncière. This is an annual land tax paid by the property owner, whether they live in the home or not. This tax includes the taxe d’enlèvement des ordures ménagères (TEOM), a tax for household garbage collection which is a bit like our council tax.
Then there is the taxe d’habitation, which is now only charged on second homes or tenants and not people living in their primary residence.
Both of these levies are calculated based on what is known as the cadastral rental value of a property. That is the theoretical amount of money that could be charged to rent it out.
Overall, France has a simpler system than the UK. However, when a home is sold for a profit by someone who has not owned it for 22 years or more, they must still pay CGT at a standard rate of 19 per cent. This is meant to discourage flipping and speculation.
France also has something akin to a “mansion tax” – levied on people whose net real estate assets in the country are worth more than €1.3m (£1.1m). Like British landlords, those who rent out homes in France must also pay tax on their rental income.
Canada
In Canada, housing is generally taxed at a local level. Like France, there is also an annual property tax which is calculated by multiplying the value of a home by a combined municipal and education tax rate, which covers services like police, fire and rubbish collection. Each province has an assessment team that regularly revalues homes to work out how much to tax people.
People also pay a land transfer Tax, like stamp duty, when buying a home. However, there is also a 1 per cent annual tax for empty homes called the Underused Housing Tax (UHT). This is meant to discourage people from overseas buying housing in Canada and leaving it empty but it could also impact some second homeowners.
Much like France and Britain, CGT applies to people who sell a home which is not their primary residence at a profit. The Canada Revenue Agency (CRA) decides what to charge based on whether a home is being sold as an investment or flipped.
South Korea
It’s worth noting that Korea’s finance minister has just announced a review of the way housing is taxed because house prices have been going up in the country. One option under consideration is decreasing transaction taxes (like stamp duty) to encourage people to move.
There are several different taxes in Korea. Like France and Canada, there is an annual property tax. But there is also another tax for people who own homes (and other property) called the Comprehensive Real Estate Holding Tax (CRET), and people pay an acquisition tax (like SDLT) when buying a home.
The amount of annual tax charged depends on the sort of home and where it is located, but higher rates of 5 per cent can apply to high-value homes.
USA
In the USA, an annual and ongoing tax is charged to homeowners. However, this varies from state to state and can be anything from 0.3 per cent to 2.5 per cent of a home’s value.
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Overall, the system is somewhat simpler in the US than it is in the UK. When buying a home in America, you will pay a local property transfer tax as part of “closing costs” – generally somewhere between 2 per cent and 5 per cent of a home’s purchase price.
There is no national “mansion tax”, but in New York City, people living in homes worth $1m (£756,000) or more pay an additional tax rate, which increases from 1 per cent in line with the property’s value.