Rachel Reeves is preparing for her Budget on November 26 (Image: GETTY)
Speculation over Rachel Reeves’ mooted “mansion tax” has plunged London’s property market into chaos, with sellers slashing prices and buyers fleeing amid fears of a punitive raid on homeowners, financial experts have warned. As the Chancellor faces plugging an estimated £30 billion shortfall in public finances ahead of her November 26 Budget, critics say her options risk prompting wealthy individuals to relocate overseas and hindering economic recovery.
Ms Reeves is reportedly considering a 1% annual levy on the value of homes exceeding £2 million, resulting in a £10,000 yearly charge for a £3 million property, and may even opt to increase income tax by 2p, breaching Labour’s manifesto commitment. Other reports also indicate potential capital gains tax (CGT) rises to 24% for higher-rate taxpayers on gains from properties valued at £1.5 million and above.
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Health Secretary Wes Streeting (Image: Getty)
Estate agents have reported increased calls from clients following the weekend reports, with agreed sales falling 3% in September—the first annual decline in two years—and higher-value areas most affected.
Shares in housebuilders Vistry and Barratt Redrow fell by up to 2% on the London Stock Exchange on Monday.
Becky Fatemi, executive partner at Sotheby’s International Realty, told the Telegraph: “High-net-worth clients had reacted with disgust… perceiving no incentive at all to be here.”
She added: “Today, I’ve had a few phone calls from people saying, ‘Look, whatever price I need to sell at, just reduce it to that so I can get it away’.
“But then I’ve got other clients who have told me, ‘Actually, I’m not going to sell – I’m going to wait for this Government to leave because there’s no way that they’re going to be able to sustain this kind of stupidity, and I’m just going to take my property off the market’.”
She said Labour was “shrinking the economy quite dramatically and breeding a stagnant swamp”.
Property experts described the proposals as short-term measures likely to harm the market. Harps Garcha, director at Brooklyns Financial, said: “The Government’s plan will have a massive impact on London and the South East, where many middle-class families have sacrificed themselves for years to build wealth through their homes.
“These homeowners expected to rely on that equity in retirement by downsizing, yet they now face being taxed twice, first through Stamp Duty and then Capital Gains. Rather than rewarding prudence, this policy punishes those who have worked hard and planned responsibly for their future.”
Housing Secretary Steve Reed (Image: Getty)
Cameron Scott, broker at Archie John Financial, said: “Instead of spending all their time researching ways to further tax people, the Chancellor and her team should spend time finding ways of reducing their spend or using current tax receipts more productively.
“The number of people leaving the UK is on the rise, and with the increased cost of living I think this move could push even more people away who are currently sat on the fence.
“Following this, where does the demand come from for higher value homes? This will shock the higher end of the market where lenders are already reducing property valuations for mortgage purposes.”
Stephen Perkins, managing director at Yellow Brick Mortgages, said: “This would be an easy target for the Chancellor as a public uproar about those living in homes over 1.5 million paying more tax is unlikely.
“It may make more sense if it applied to additional rate taxpayers and the super wealthy, as I can see a lot of families in London being caught with this higher tax bill, and it may push more wealthy tax contributors to exodus the UK, which is already a problem following the Chancellor’s last budget.”
Research by Audley Villages shows that 47% of over-55s considering downsizing say their plans would be affected by property tax changes. Of 5.1 million over-55s contemplating a move, 19% are taking a “wait and see” approach, 15% aim to downsize before the Budget and 13% are less likely to proceed.
Nick Sanderson, CEO of Audley Group, said: “The Government must tread very carefully on the introduction of property taxes.
“Already the rumours are having an impact with potential downsizers putting plans on ice or even shelving them altogether.”
Former Bank of England governor Lord Mervyn King appearing on Sky News (Image: Sky News/PA)
Cabinet ministers have avoided specifics. Health Secretary Wes Streeting told GB News the public finances, economy and family budgets are in a “challenging state”, but noted “green shoots” including the UK’s fastest G7 growth in the first quarter of 2025.
He said: “We’re not out of the woods yet.” Housing Secretary Steve Reed declined four times to rule out a mansion tax in Monday interviews. He said: “It’s best for me not to answer that question.”
Ms Reeves, attending an investment summit in Riyadh, said: “We are looking, of course, at tax and spending to ensure that we both have resilience against future shocks by ensuring we’ve got sufficient headroom, and also just ensuring that those fiscal rules are adhered to.”
Her targets require balancing day-to-day spending with tax receipts by 2029/30, maintaining a £10 billion buffer now at risk from Office for Budget Responsibility forecasts on productivity.
Former Bank of England governor Lord Mervyn King criticised the approach on Sky News. He said: “You don’t solve that problem by just adding another wealth tax to it.
“You could do a great deal by thinking it through first.”
A YouGov poll found 69% support for a mansion tax on homes worth more than £2 million, and 75% for a 1% wealth tax on assets above £10 million, with strongest backing from Labour, Green and Liberal Democrat voters. Support for raising the higher rate of income tax stood at 42%, while only 14% backed a VAT increase.
Andrew Teacher, co-founder of Lauder Teacher, said: “A wealth tax would further damage the perception that Britain is open for business.” He said: “Instead, a radical reform to council tax and business rates is what is needed.”
Ms Reeves’ July Budget raised VAT on private school fees by up to 20%, reformed CGT for £2.5 billion, changed inheritance tax for £2 billion and targeted non-doms for £4.5 billion.
Further measures include halving the £20,000 tax-free cash Isa allowance and reviewing council tax. Economists estimate she needs £30 billion to close the gap, as the IMF forecasts US growth outpacing the UK’s this year.