Is the government’s need to raise more tax delivering two body blows to prime property owners

Thought leadership by Andrew Stanton

Over the years the fortunes of those owning property have been closely tied to the whimsical nature of the Chancellor of the Exchequer. Often what seems a prudent fiscal policy, turns into political and economic folly. The latest cloud on the horizon is adding a new layer of taxation on top of expensive residential properties.

This disadvantages the owners of these ‘mansions’ doubly, on the one level they will need to stump up an extra £2,500 to £7,500 a year, the second thing it does is create an artificial cliff edge where if property is listed for sale it may well be marketed at a lower figure to entice a buyer and offset this ‘new’ cost for a buyer.

Over the years I saw first hand that setting rigid bands where taxation cuts will have a negative effect when it comes to the marketing price of property. Take for example SDLT, if you buy at £100,000,000 you would pay £43,750 (£93,750 if it is a second home), so lowering the overall buying price can push your purchase under higher tax brackets or reduce the taxable portion.

But this ‘Mansion Tax’ is stickier as it is not a one off thing, but an ongoing tax that will just increase. A real disincentive to buy, which may be overcome by the vendor reducing a sale price to act as a sinking fund to offset say the next ten years tax liability, so a £25,000 haircut gives a new owner some breathing space buying a home at £2,000,000.

The Labour government may shed few tears for the rich, who own such homes, but the housing market and tax receipts from SDLT are very important, so any stagnation in the big ticket marketplace could offset any new tax receipts. Set out below is the government’s position – I feel it is draconian and ill thought out, time will tell. 

‘The government announced the introduction of a new High Value Council Tax Surcharge. From April 2028, owners of properties identified as being valued at over £2 million will be liable for a recurring annual charge which will be additional to existing Council Tax liability.

This measure is estimated to raise £0.4 billion in 2029-30. Local authorities will collect this revenue on behalf of central government and will be fully compensated for the additional costs of administering this new tax. Revenue will be used to support funding for local services, with further consideration through the next Spending Review.

The current Council Tax system was introduced in 1993. It taxes domestic property through eight valuation bands, based on property values in 1991. Local authorities set annual Council Tax levels and administer the tax, with support and exemptions available. In 2024-25, Council Tax raised £40.3 billion across England.

The High Value Council Tax Surcharge (HVCTS) is a new charge on owners of residential property in England worth £2 million or more in 2026, taking effect in April 2028. A public consultation on details relating to the surcharge will be held in early 2026.

Homeowners, rather than occupiers, will be liable to the surcharge and will continue to pay their existing Council Tax alongside the surcharge. Social housing will not be in scope.

The Valuation Office will conduct a targeted valuation exercise to identify properties above £2 million and therefore in scope. Fewer than 1% of properties in England are expected to be above the £2 million threshold. Revaluations will be conducted every five years.

Under the current system, the average band D charge for a typical family home across England is £2,280. That is £250 more per year than a £10 million property in Mayfair, based on the band H charge in the City of Westminster, currently pays. This surcharge will change that, implementing a significant reform to improve fairness within England’s property tax system.

Properties above the £2 million threshold will be placed into bands based on their property value. Charges will increase in line with CPI inflation each year from 2029-30 onwards.

High Value Council Tax Surcharge charging structure

Threshold (£m) Rate (£)

£2.0-2.5               £2,500

£2.5-3.5               £3,500

£3.5-5.0               £5,000

£5+                      £7,500

The HVCTS will be administered alongside existing Council Tax by Local authorities, who will collect this revenue on behalf of central government. It is estimated to raise around £430 million of revenue per year from 2028/29 to support funding for local government services. Local authorities will be fully compensated for the additional costs of administering this new tax. The government will undertake a new burdens assessment to ensure costs to local authorities are fully funded. 

The government will ensure a support scheme is in place for those who may struggle to pay the charge. It is important this scheme is targeted at those who need it most. This will be a key area of consultation in the New Year. 

The government will also consult on a full set of reliefs and exemptions, as well as proposed rules for more complex ownership structures including companies, funds, trusts and partnerships. The consultation will also cover treatment of those who are required to live in a property as a condition of their job (tied property).’ – source GOV.UK