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A new analysis shows that homes worth more than £2.66 million are now half as likely to sell homes less than the lowest priced properties, due to the British government’s recent fallout from a “deficiency tax” on this category of homes.
The tax, announced by former finance minister Rachel Reeves in last year’s budget, is due to come into effect in April 2028 and will apply to properties worth £2 million or more.
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Property data company TwintyCi notes that this policy has already begun to negatively affect the luxury real estate sector, according to a report published by the London-based Evening Standard and seen by Business.
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The analysis found that 53.1% of homes worth less than £2 million reached the contract swap between June and September this year, while this figure fell to only 25% for properties above the £2 million mark.
While 966 homes worth more than £2 million were sold during that period, another 2898 properties either failed to find a buyer or were completely withdrawn from the market.
These figures are likely to increase concerns about the situation of London’s luxury real estate sector, which is already suffering from the fallout from rising mortgage costs, increased stamp duty (transport tax) and the abolition of the “non-resident” tax status.
Under the Palace Tax, owners of properties worth £2 million or more will face an additional annual tax burden added to the ‘local council tax’, which is escalating on a graded scale; the costs to homes worth more than £5 million could reach £7,500 per year.
Real estate agents and industry experts have repeatedly warned that the tax could alienate buyers and sellers in the luxury real estate market, particularly in central London, where property values often exceed the £2m barrier.
The findings come amid speculation that Finance Minister John Haley may consider lowering the minimum value of taxable property in a future budget, a move critics say will bring thousands more homeowners under the tax, which could put greater pressure on a market already in recession.
There has also been speculation that Finance Minister John Haley could lower the minimum value of taxed properties to include £1.5 million worth of homes. This means that the number of homes affected by the “deficiency tax” will rise sharply from 144 thousand to 271 thousand homes.
Such a move would have profound implications for families living in the capital, where it would disproportionately affect homeowners in London, the Evening Sentanders report said.
According to an analysis by the Hamptons, 19 of the 20 most affected constituencies are in London. However, reports indicate that the Treasury Secretary has decided to reverse the move, following strong opposition from Labour MPs and local councils in London.
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