As regular readers know, On London is always on guard against attempts to divert more funding from London, already a major net contributor to UK taxes, to the rest of the country. Other regions need investment for sure, but London’s golden eggs are in limited supply. The capital’s problems, which include the highest regional poverty rates after housing costs, cannot be ignored.
But it’s hard to deny that Rachel Reeves had a point when she observed in her budget speech that a “Band D home in Darlington or Blackpool pays just under £2,400 in Council Tax…nearly £300 more than a £10 million mansion in Mayfair”.
You can decry the pointing at Mayfair when several London boroughs charge more in Counci Tax than Darlington or Blackpool. You can point out the historic reasons for the imbalance, from the tax’s origins as a post-Poll Tax hybrid of service charge and tax, to outdated valuations and variable price changes since 1991, to the relative performances of councils in different parts of the country. You can highlight the way that other local taxes, such as Business Rates, are raised in London and distributed across the country. But even so, the disparity doesn’t look fair.
The Chancellor’s solution is a new “mansion tax” – or “high value council tax surcharge” to use its full and slightly misleading title – which will be imposed on properties valued at over £2 million. It will be introduced from April 2028 – like other tax rises, kicked towards what Reeves must hope will be sunnier uplands two years hence. Treasury calculations estimate the tax will raise £400 million by 2029/30.
The “mansion tax” will clearly hit London (and the South East) harder than other English regions, but it is hard to work out precisely how much harder. The most recent comprehensive valuation of properties, which forms the basis of Council Tax bands today, was made 35 years ago. Property price changes have diverged wildly since then, so it doesn’t tell us much about current values.
One possible proxy would be looking at prices actually paid for properties. Such data is collected and published by the Land Registry. This is probably as good as anything else in the public domain, but still pretty flawed. For one thing, we cannot assume that the values of properties sold in any given year reflect the values of those that are not. There may be more high value properties than show up in the sales figures, as these have proved toughest to sell in recent years. Or, there may be fewer, as prices have dropped for this very reason (particularly in “prime” London).
Still…In 2024, around 2,600 properties in London were registered as sold for over £2 million, representing around two thirds of all sold at that level in England. Almost half of these sales were in Kensington & Chelsea, Camden, Westminster and the City of London. Properties in London were also far more likely to be sold for the highest prices: 0.5 per cent of all sales in London were for more than £5 million compared to 0.01 per cent of all such sales in the rest of England.
Extrapolating those ratios to estimate (very roughly) the impact of the measures, it looks like around 100,000 of London’s three million non-socially rented dwellings (3.3 per cent) might be liable to the tax, compared to around 40,000 of the 19 million in the rest of England (0.2 per cent). In total, Londoners could pay just over 75 per cent of an indicative mansion tax yield of £525 million.
This is a higher total figure than that estimated by the Treasury, which has no doubt modelled non-payment, price changes and various valuation finagles, but it is not that far off. My workings can be seen below.
So, Londoners will be paying the bulk of this new tax, and that will include many who feel very far from “wealthy”. But it won’t go to London. Though it is called a “council tax surcharge”, the tax has nothing to do with Council Tax: funds raised will go straight into national coffers, bypassing even a nominal allocation to local authorities (who would likely lose any gain in adjusted government grant allocations). In the words of the LSE’s Professor Tony Travers, “It’s a central government tax. Pure and simple”.
London’s net fiscal transfer will creep up from the £43 billion that went from the capital to other parts of the UK in 2022/23, and accountability will become ever more confused. The Local Government Association has already highlighted the risk that councils are regarded as accountable for a charge that they do not control or spend, and have asked that the funding raised is allocated to local authority services.
There may be significant practical difficulties in implementation too. There have been revaluations since 1991: the Valuation Office undertook one of Wales’ 1.5 million homes in 2003, and is planning another by 2028, using sales data and automated valuation to develop a more sophisticated approach to determining values.
But it’s not going to be easy. As a signal of complexity, it is worth noting that the Welsh revaluation has been postponed from this year. Furthermore, people living in houses valued at over £2 million include many who have tax advisors, chartered surveyors and lawyers on speed dial.
Experts such as Paul Johnson, Dan Neidle and Neal Hudson have also observed that the system is a throwback to the “slab” system of Stamp Duty Land Tax that was phased out in 2016, and led to sale values clustering just below the points where higher rates would kick in. April 2028 suddenly seems a lot closer.
More fundamentally, this is a clunky half measure. There is a strong case for a comprehensive reform, to fully revalue and re-band properties for Council Tax, or to go further and replace Council Tax and Stamp Duty with new property or land value taxes, using innovative valuation techniques to create a more transparent, responsive and proportionate system.
The mansion tax is not that comprehensive reform. Instead, the risk is that this measure, like Inheritance Tax hikes on owners of farmland and family businesses, annoys an influential and vocal minority, without raising huge sums.
And it will leave the core machinery of Council Tax, with its 20th Century valuations, its restrictive banding model, and its proliferating surcharges and discounts, looking increasingly dusty and dilapidated – like an unloved and barely functional household appliance that everybody hates but nobody can quite bring themselves to replace.
First published by On London
Richard Brown 