Rachel Reeves handed dire property tax warning over 'wealth exodus' fears

Rachel Reeves has been handed a stark warning over her latest property tax proposal, with industry insiders warning that a so-called mansion tax could drive wealthy homeowners out of the UK and "kill off the upper end of the property market." Under the plans reportedly under consideration, properties valued at £1.5 million and above would face Capital Gains Tax (CGT) on any increase in value. Higher-rate taxpayers would pay 24% of any gain, while basic-rate taxpayers would face an 18% levy.

The Government intends this measure to help plug the UK's fiscal gap, but critics argue it risks punishing long-term savers and destabilising the housing market rather than raising sustainable revenue. Harps Garcha, Director at Slough-based Brooklyns Financial, warned that London and the South East would be hardest hit. He explained: "The Government's plan will massively affect middle-class families who have sacrificed for years to build wealth through property. Many had planned to rely on this equity in retirement by downsizing.

"Instead, they now face double taxation - first through Stamp Duty and then on any capital gain. This policy punishes prudence and discourages financial independence."

Cameron Scott, Broker at Archie John Financial, cautioned that a mansion tax could accelerate the departure of high-net-worth residents.

He added: "With the cost of living rising and more people already leaving the UK, this policy could push others abroad. The higher-end property market, already cautious, may see demand drop sharply as lenders adjust valuations, which would ripple across the wider housing sector."

Stephen Perkins, Managing Director at Norwich-based Yellow Brick Mortgages, highlighted the risk to families in London and the South East.

He said: "While the tax might appear politically safe - few would object to taxing homes over £1.5 million - it risks affecting families who aren't ultra-wealthy. Some may feel forced to relocate abroad, taking both their spending power and tax contributions with them, creating a negative knock-on effect for the economy."

Rob Mansfield, Independent Financial Advisor at Rootes Wealth Management, described the proposal as short-termist.

He warned: "A dynamic housing market relies on people moving into homes that suit their needs. Penalising homeowners for selling could lead them to hold onto their properties indefinitely, stifling market mobility and undermining long-term economic growth."

Questions also remain over how the tax would be applied. Scott Gallacher, Director at Leicester-based Rowley Turton, noted potential pitfalls.

He said: "If there's a cliff edge at £1.5 million, it could distort the market. A property valued at £1.49 million faces no CGT, while one at £1.5 million could trigger a six-figure bill.

Even if the tax applies only to gains above £1.5 million, revenue may be minimal. Most affected homeowners will end up paying the 24% higher-rate anyway."

Older homeowners, who bought properties decades ago, may be discouraged from downsizing entirely, he pointed out.

He added: "Faced with a hefty CGT bill, many would hold onto their homes until death, which is counterproductive for the housing market. It also removes the chance for younger buyers to enter prime areas, potentially slowing regional growth."

David Stirling, Independent Financial Adviser at Belfast-based Mint Wealth Ltd, called the idea "mad-cap".

He said: "In London and the South East, £1.5 million isn't even a mansion. If this goes through, it could unsettle an already jittery market. Estate agents may even need tissues for nervous buyers. People rely on predictable policy for planning; introducing sudden, high taxes undermines confidence."

Industry insiders stress that while the proposal targets a small segment of homeowners, the effects could be disproportionate. From discouraging responsible homeownership to accelerating the migration of wealthy citizens, experts warn the policy may solve immediate fiscal problems while creating long-term headaches for the property market and the wider economy.

Many argue that smarter solutions - such as incentivising productivity, reforming existing taxes, or carefully targeting ultra-high-net-worth individuals - could raise revenue without jeopardising market stability.

As discussions continue, the Government faces a delicate balancing act: raising money without triggering an exodus of wealth, maintaining confidence in the housing market, and ensuring that policies reward prudence rather than punishing it.

Analysts caution that rushing through a mansion tax could create unintended consequences, undermining both property values and the UK's global competitiveness.