A mansion tax would hit ordinary Londoners and stall the market
A rumoured tax raid on sales of properties over £1.5m would be a disaster for Londoners, says James Evans
With the Treasury neither confirming nor ruling out the prospect of a so-called ‘mansion tax’ – a capital gains levy thought to be based on the sale of primary residences above £1.5m – uncertainty is already rippling through London’s property market. While official details remain unconfirmed, the rumour is having an impact (especially in London and the Southeast) where many properties exceed the proposed threshold.
It’s important to recognise that £1.5m sounds like a fortune in some parts of the UK. Yet in London, it’s often the price of a two or three-bedroom flat. Or a modest family home in an up-and-coming postcode. According to the latest ONS figures, the average UK house price rose by 3.0 per cent to £273,000 in the 12 months to August 2025. In London, average prices are more than double that. In many neighbourhoods £1.5m is far from a mansion.
Currently, capital gains tax (CGT) isn’t levied on the sale of a primary residence. It only applies to second homes or investment properties. Extending CGT to the family home would be a significant shift. One that could have far-reaching consequences for long-term owners and older people looking to downsize. Discouraging moves. Limiting the supply of homes for growing families.
The practical implications are considerable. The higher end of the property market is already facing challenges, with sellers finding it difficult to move properties and buyers wary of further policy changes. Introducing a new CGT threshold could impact around 120,000 homeowners, With CGT rates at 18 per cent for basic-rate taxpayers and 24 per cent for higher-rate taxpayers, the sums involved are substantial.
Life-changing sums
For someone who bought decades ago, the tax could be significant. Imagine someone who purchased their home in 1980 for £100,000, and today it’s worth £1.6m. The tax bill would be £360,000 at the higher rate. These are not just numbers on a page – they represent life-changing sums that could prevent people from moving, downsizing, or passing on wealth to their families, who would otherwise spend that money and help boost the wider economy.
Such a policy would impact individuals and the capital’s economy. Estate agents, solicitors and other service-based businesses that rely on property transactions could see activity slow further. At a time when inflation remains stubbornly high (ONS data confirms inflation held at 3.8 per cent in September for the third month in a row) it also risks stalling the market just when the economy needs momentum.
This uncertainty also sends a message that Britain is closed for business to the ultra-wealthy. Policy ambiguity ahead of the Autumn Budget is already making buyers cautious, especially at the higher end.
There are further complications. The proposal could create a “cliff edge” around the £1.5m threshold, distorting behaviour as buyers and sellers try to swerve it. Requiring regular reassessment of property values, adding an administrative burden for both homeowners and HMRC.
In discouraging downsizing, the tax would reduce the availability of family homes in areas where growing families want to move and create local wealth
Perhaps most concerning is the impact on housing supply. In discouraging downsizing, the tax would reduce the availability of family homes in areas where growing families want to move and create local wealth. A shortage of stock would further inflate prices and limit social mobility, particularly in London and the Southeast.
While a mansion tax may sound fair in regions where house prices are lower, it risks penalising ordinary people who bought early, worked hard, and now face being taxed out of their homes. It would do little to address the root causes of housing inequality. Much to undermine confidence in the market.
What the property sector, and the wider economy, needs now is stability. Clarity. Not more uncertainty. The government should focus on measures that support mobility, encourage transactions and help unlock housing stock. Not punitive taxes that risk freezing the market and hurting those who have played by the rules.
James Evans is CEO at London-based real-estate agent Douglas & Gordon