Mansion tax rumours cause prime London property prices to slide – Knight Frank

According to Knight Frank, this was the sharpest fall since February 2021. 

Over the last year, average prices dropped by 1% in prime outer London, and Knight Frank said this could not be solely because of the upcoming Budget, but tax speculation had not helped. 

The firm said prices had felt additional downward pressure since the start of the year because of increased property supply.  

It has been rumoured that the Chancellor is planning to impose a ‘mansion’ tax on properties, with speculation that this could impact homes worth £1.5m or £2m and more. This would mean that homeowners of high-value properties would need to pay capital gains tax (CGT) on the sale of their property.

Knight Frank said over 150,000 properties in England and Wales would fall into this bracket, and taxing these homes would result in fewer of them. 

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The Liberal Democrats proposed a similar tax on properties over £2m around 13 years ago, and Knight Frank said this similarly deflated the market at the time, and although it was not introduced, “the demand in prime markets has never fully recovered”.  

Its data showed that since 2012, average values in PCL had fallen by 8%. 

Knight Frank said the same arguments made in 2012 were still true, such as long-term homeowners being unable to pay the tax and the potential to catch out pensioners whose homes had gone up in value, but whose incomes had fallen. 

It said this could lead to more downsizing and efficient use of housing stock, but under the assumption that people wanted to leave the area they lived in. 

Knight Frank said targeting a transaction-based tax on a part of the housing market where people had more of an ability to stay put was a “high-risk strategy”.