What is the Mansion Tax?
The UK Autumn Budget 2025 introduced a new High Value Council Tax Surcharge (HVCTS), widely known as the “mansion tax”, expected to take effect in April 2028. The HVCTS will apply to homes in England valued over £2 million based on a 2026 valuation – the process for determining which has not yet been outlined.
The HVCTS will operate through four value-based bands, levying a £2,500 charge for properties valued between £2 million and £2.5 million and increasing to £7,500 for properties valued over £5 million. The surcharge will increase annually in line with Consumer Price Index (CPI) inflation from the 2029–30 tax year onwards.
Why is the UK government implementing the Mansion Tax?
The Mansion Tax increases council tax liability amongst high-value property owners, expanding the scope of property taxation beyond the existing council tax system which remains based on 1991 values.
The new regime marks a significant change in the residential property tax landscape, with HVCTS to be charged in addition to existing council tax obligations and the revenue remitted to central government, rather than local authorities.
Who is liable to pay the Mansion Tax?
Property owners will be liable for the HVCTS, regardless of whether they live in or derive income from the property. This distinguishes the surcharge from other property-related obligations, including existing council tax and other premium charges that may apply to second homes or vacant properties.
What impact will the Mansion Tax have on prime residential real estate?
Containing the greatest concentration of properties above the £2m threshold, properties in London and the South East are almost certain to be most affected, with a significant portion of prime central London locations such as Mayfair, Belgravia, Knightsbridge, Kensington and Chelsea set to fall within the scope.
The valuation exercise in 2026 may pose a challenge in the context of ultra-high-value properties with limited recent transactional comparables. Should valuation appeals ensue as predicted, this could create uncertainty in the lead-up to implementation.
What are the Mansion Tax implications for overseas buyers of UK real estate?
Foreign investors considering purchasing property in the UK in 2026 and beyond must factor the surcharge into their assessment of real estate investment opportunities. The cumulative cost of holding high-value residential property is likely to rise, particularly for long-term owners retaining assets across multiple valuation cycles.
High-net-worth investors considering buying high-value residential real estate in London will now need to project the likely 2026 valuation that will determine liability for the five-year period commencing in April 2028. Read more on further requirements for non-UK entities owning UK real estate in our article.
How has the Mansion Tax impacted UK property prices?
The prospect of a recurring surcharge tied to property value has already influenced market behaviour, with some owners and potential buyers reportedly adjusting asking prices to remain below the £2 million threshold, a practice known as “price bunching”.
Such activity reflects commercial responses to anticipated liabilities, which may impact liquidity and pricing around key valuation boundaries well before the surcharge comes into force. Furthermore, the ability to pass on additional costs to tenants may be limited in some segments of the market, particularly where demand softens at the top end.
How should property investors plan for the Mansion Tax?
Some buyers may view any market adjustment as an opportunity, particularly where long-term capital preservation rather than short-term yield is the primary objective.
Investors can prepare for the Mansion Tax by:
1) Understanding how residential properties are likely to be valued in April 2026, as this valuation will determine exposure to the surcharge for several years. Further guidance on the valuation process is expected.
2) Considering ownership structure carefully (whether held personally, in trust or by a company), including to ensure broader tax efficiencies following implementation of the surcharge.
3) Modelling long-term holding costs, including the cumulative impact of the HVCTS and CPI-linked increases, will be essential when assessing whether to retain, restructure ownership or dispose of an asset.
For investors with diversified portfolios, the HVCTS surcharge may prompt reassessment of asset allocation between residential, commercial and alternative property classes.
Barnes Law advises high-net-worth individuals, investors and corporate clients on real estate transaction structuring and strategy. Please contact the Real Estate team at Barnes Law for advice on real estate strategy in 2026.
Written by Barnes Law Managing Partner, Yulia Barnes.
