Mansion Tax Shock: Why Even Small Two-Bedroom Homes Could Be Hit
Concerns are mounting about possible tax increases expected in Wednesday’s Budget, which Chancellor Rachel Reeves will present at 12.30pm. Among the most talked-about proposals are potential council tax reforms and a new “mansion tax” aimed at higher-value homes.
According to The Guardian, the government may revise the council tax banding system, meaning owners of the most expensive properties could face higher bills. Meanwhile, the proposed mansion tax would impose an annual charge on homes above a certain value. Earlier suggestions set the threshold at £1.5 million with a 1% levy, but The Times reports that the plan has been softened to apply only to properties worth more than £2 million.
Under the current idea, a £2.5 million home would be charged £5,000 annually, while a £3 million property would face a £10,000 bill. Despite its name, the tax could still affect modest-sized homes in areas where property prices have soared. In Highgate, north London, a two-bed terrace listed for £2.05 million would incur a £500 annual charge. In Little Venice, a two-bed semi on the market for £3.5 million would face a £15,000 bill.
Property firm Hamptons estimates that around 100,000 homes in England are valued above £2 million—half in London, and 85% across the south. While many outside these regions may feel little sympathy, the agency warns the tax could depress values just below the threshold, creating a sharp “cliff edge” in prices.
What Else to Expect in the Budget
The Autumn Budget will be broadcast live across major UK news channels and online via Parliamentlive.tv. Alongside the mansion tax, Reeves is expected to announce:
Benefits
Plans to lift the two-child benefit limit, at an estimated cost of £3 billion.
A crackdown on benefit fraud, aiming to save £1.2 billion.
Income Tax
Reeves is expected to avoid raising income tax rates.
Instead, she may freeze income tax thresholds until 2030, extending the freeze by two years.
The Institute for Fiscal Studies has warned that further tax rises are “almost certain” if the government wants to meet its fiscal goals.
Transport
A freeze on train fares, which could save some commuters over £300 a year.
Funding approval for a Docklands Light Railway extension to Thamesmead.
Additional £1.3 billion for electric vehicle grants, though EV drivers may also face a new 3p-per-mile road tax.
Housing & Property
Landlords whose main income comes from renting may be required to pay National Insurance.
Possible replacement of stamp duty with a new form of property tax.
Consideration of applying capital gains tax to higher-value homes.
Alcohol Duty
Alcohol duty is expected to rise, pushing up prices by roughly 15p for a bottle of wine and 7p for a four-pack of lager. Industry groups are urging the government to exempt pubs, many of which are struggling to stay open.
Pensions
The government may reduce the tax-free lump sum available from pensions at age 55, aiming to raise £2 billion.
Pension contributions made through salary sacrifice may be capped at £2,000 before National Insurance charges apply.
