Rumours of the Labour Party’s proposed ‘Mansion Tax’ have dominated property headlines, typically focusing on London’s multi-million-pound homes. However, at KhanMather Solicitors, we are urging our clients to look beyond the headlines. New analysis suggests that a separate but related property tax reform could inadvertently drag in far more modest properties—even those valued as low as £135,000.
If you are a homeowner, a prospective buyer, or a landlord, the potential for a seismic shift in UK property taxation means you need to understand the real risks.
The Headline ‘Mansion Tax’: £2 Million+ Properties
Let’s first clarify the headline proposal:
The most commonly discussed ‘Mansion Tax’ is an annual levy, often speculated to be a 1% annual charge on the portion of a property’s value above £2 million. Another option being weighed is the removal or reduction of the Capital Gains Tax (CGT) exemption (Private Residence Relief) for homes sold above a threshold, perhaps £1.5 million.
- Who it hits: Primarily wealthy homeowners in London and the South East, where the concentration of £2m+ properties is highest.
- The Intent: To raise revenue from the wealthiest property owners, often pitched as an issue of fairness.
This is the ‘Mansion Tax’ everyone talks about. But it is not the only property tax reform on the table.
The Hidden Threat: The National Property Tax
The concern for homes valued as low as £135,000 stems from a separate, but related, proposal: the possible abolition of Stamp Duty Land Tax (SDLT) for owner-occupied homes and its replacement with a new National Property Tax.
Reports indicate that this new annual charge, which would be paid by the seller upon disposal, could be based on a model that starts taxing homes above a much lower threshold, with rates increasing progressively.
The £135,000 ‘Catch’ Explained
Under the current SDLT regime, the ‘nil-rate’ band (the amount you pay 0% tax on) is £250,000, though this is only £125,000 for non-first-time buyers purchasing below a certain value. Crucially, a Labour proposal floated for the new SDLT rates includes:
- Reducing the nil-rate band from £250,000 to £125,000 for all purchases (excluding first-time buyers who are exempt up to £300,000).
- Introducing a 2% rate between £125,000 and £250,000.
If the new National Property Tax is structured to capture more of the market and replace this revenue, the threshold would need to be very low. One proposal being discussed is a National Property Tax levied on all house values above £500,000, which would replace SDLT.
However, the risk to £135,000 homes comes from another direction: the Council Tax reform.
The Council Tax Overhaul: The Silent Property Wealth Tax
The current Council Tax system is based on property valuations from 1991. Economists and politicians from across the spectrum agree it is archaic and fundamentally unfair.
A popular reform option, which has reportedly been considered, is to revalue all properties and restructure Council Tax bands. The most immediate and politically expedient version of this is to simply double the Council Tax for the top bands (G and H) or introduce new bands altogether.
But any overhaul that links tax liability to current property value will inevitably drag in lower-value properties.
- The average UK property price is now over £272,000.
- The average price in the North East is approximately £162,000.
- A flat or maisonette in Wales currently has an average price of around £129,000 and a terraced house in the North East is often below the £150,000 mark.
The Unintended Consequences
If the government attempts to reform the property tax system entirely—as some think-tanks propose—to replace both SDLT and Council Tax with a single, annual property levy based on current value, even a home valued at £135,000 could find itself subject to a new annual charge.
While this value is far from a ‘mansion’, a new tax structure could see these ‘starter homes’ swept up in a wider, wealth-based tax net, creating significant hardship for:
- Pensioners: Asset-rich but cash-poor individuals who may own their home outright but lack the income to pay a new annual levy.
- First-Time Buyers: Higher annual costs will make home ownership less affordable overall, despite any potential SDLT saving.
- The Regional Divide: While London’s properties top £2m, the average ‘family home’ in the North is significantly lower. Applying any form of wealth-based property tax on a national level, even with a high exemption, risks disproportionately impacting other parts of the UK.
Our Advice: What to Do Now
At KhanMather Solicitors, we understand that tax speculation is a homeowner’s worst nightmare. With the political landscape shifting, the certainty of your property’s future tax liability is under threat.
This is not the time for a ‘wait and see’ approach. If you are considering buying, selling, or have concerns about your existing property wealth, expert legal advice is essential.
Don’t let speculation become a costly reality. Contact Hannah Cohen on 0161 850 9911 today.