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A rush by wealthy homeowners to price properties in England just under new “mansion tax” thresholds is set to hit stamp duty receipts and cost the Treasury more than £330mn before the levy takes effect in April 2028.
Buyers and sellers are already looking to sidestep chancellor Rachel Reeves’ council tax surcharge by agreeing asking prices below the bands laid out in the Budget, a practice known as “price bunching”, estate agents said.
The levy on homes worth more than £2mn is a recurring yearly charge affecting about 165,000 high-value properties, mainly in London and the south-east, and spread across four price bands.
It is expected to generate roughly £600mn a year from 2028, with a net yield of approximately £400mn once lower receipts from other property taxes — including stamp duty land tax, capital gains tax and inheritance tax — are taken into account.
But bunching around bands, as well as some homes being repriced below the £2mn threshold, will leave the Treasury £335mn worse off in revenue terms from existing property taxes in the next three years, according to Budget documents.
“This behavioural change is baked into our costing . . . but any further impact on prices is relatively modest,” said one government official.
For properties valued in the lowest £2mn to £2.5mn band, the surcharge will be £2,500, rising to £7,500 for a property valued in the highest band of £5mn or more.
To avoid dragging the buyer into the top band, one agent told the Financial Times that the two parties involved in a house sale originally set at £5mn had rushed to lower the price to £4,999,999 after Reeves delivered the Budget on Wednesday. The deal, which the agent called “a no-brainer”, exchanged that evening.
Tiny shifts in asking prices can carry long-term consequences for buyers. Under the change, a seller listing at £2.05mn drags the purchaser into a £2,500-a-year surcharge, or £25,000 over a decade, while a home costing just above £5mn saddles its new owner with a bill of £7,500 annually — £75,000 over a decade.
The government has yet to spell out exactly how properties will be valued for the new levy, which may leave owners finding it easier to appeal if they can point to a recent nearby sale placing their home below a threshold.
Estate agents and analysts said the lack of clarity from the government meant both sellers and buyers would have strong incentives to keep valuations just below the thresholds.
“There will be bunching at each level,” said Anthony Payne, managing director at LonRes, which tracks the prime central London housing market.
“If you’ve got a property just over £2mn, people are going to say £1.9mn,” he said, adding that the surcharge would echo the effects of previous property market interventions by the government, such as when then Conservative chancellor George Osborne reformed stamp duty in 2014. Bunching occurred then, too, according to LonRes data.
Higher taxes on expensive homes were seen by Reeves as an important part of the political message around the Budget, in which she said the surcharge would help “deal with a long-standing source of wealth inequality”.
Reeves, who raised taxes by £26bn in total on Wednesday, originally wanted to set the levy’s threshold at £1.5mn.
But Labour MPs, particularly in London and the south-east, persuaded the government that many voters — especially in the capital — would have been hit if it kicked in at that level, affecting roughly 300,000 homes.
Additional reporting by George Parker