London’s high-end property market has suffered its steepest annual decline in more than four years, as uncertainty grows over Chancellor Rachel Reeves’ potential plans to introduce a new mansion tax in her upcoming Budget.
Data from estate agency Knight Frank shows that prices for “prime” London homes — typically properties valued above £2 million — fell 4% in the year to October, marking the sharpest decline since February 2021. The drop follows weeks of speculation that Reeves could impose fresh levies on luxury real estate as part of her first Budget later this month.
Analysts say the prospect of higher property taxes has already cooled demand at the top end of the market, with many potential buyers delaying or abandoning purchases. “It’s a reminder of how property taxes often come with unintended consequences,” said Tom Bill, head of UK residential research at Knight Frank. “If you tax so-called mansions, you will end up with fewer of them.”
Reeves is reportedly considering a 1% annual levy on the portion of a home’s value above £2 million. Under the proposal, the owner of a £3 million property would face an additional annual tax bill of around £10,000. Knight Frank estimates that more than 150,000 properties across England and Wales could be affected if the measure is enacted.
An alternative under discussion is a doubling of the top two council tax bands, a move that would also target high-value homeowners. Both options, analysts warn, could further dampen activity in London’s already fragile luxury property sector.
Prime London property prices have been under pressure for more than a decade. Since 2012 — when the Liberal Democrats first floated the idea of a mansion tax — values have fallen 8%, according to Knight Frank. Even though the proposal was never implemented, the debate prompted then-Chancellor George Osborne to raise stamp duty on expensive homes in 2014, causing a lasting slowdown in top-tier transactions.
Bill cautioned that Reeves’ rumored tax could “repeat history,” saying, “Whether the price slide continues into next year depends on whether the government chooses to repeat history or learn from it.”
The uncertainty has also shifted demand toward the rental market. Knight Frank reported a 10% increase in demand for luxury lettings in recent months, with prime central London rents rising 1.9% year-on-year — the strongest growth since August 2024.
David Mumby, head of prime central London lettings at Knight Frank, said affluent renters were prioritising flexibility amid the policy uncertainty. “For tenants, the gloomier things feel, the more they prioritise liquidity and cash in the bank,” he said.
Economists warn that prolonged ambiguity around the Chancellor’s plans could deepen the slowdown, affecting not only property sales but also industries tied to the sector such as construction, design, and legal services.
Until Reeves outlines her proposals in the November Budget, analysts expect London’s luxury market to remain subdued — and the fate of Britain’s most exclusive homes to hang in the balance.
