The ‘High Value Council Tax Surcharge’ – mansion tax or family homes tax?

After the many weeks spent ‘kite-flying’ potential new taxes, Rachel Reeves’s November 2025 budget finally announced the snappily-named High Value Council Tax Surcharge (HVCTS). This, from April 2028, charges the owners of houses in England worth more than £2m a new tax of £2,500 a year (rising in bands to £7,500 a year on £5+m houses). The Treasury has now issued a consultation (which closes on 14 July) on some of the surcharge’s details.

Government presents HVCTS as merely “rectifying anomalies in the council tax regime”, and as a modest payment on “only the highest-value properties”. The CLA, like many tax experts and much press comment, is taking a more realistic view.

The tax rates will, at the very least, be indexed to inflation – but the HVCTS thresholds aren’t being indexed. The similar but lesser-known tax on dwellings with corporate owners, the annual tax on enveloped dwellings (ATED), began in 2013 at a ‘high’ £2m threshold, but within three years of being introduced this was drastically cut, first to £1m, and then £500,000. The ATED bands have been frozen since 2016, although the rates payable have increased annually. ATED tax rates range from £4,600 a year for residential properties valued between £500,000 and £1m to £32,200 for those between £2m and £5m (and ultimately rise to over £300,000 for residences over £20m). If HVCTS went anything like the same way, within a handful of years it would become a substantial tax on not-much-more-than-average family homes – including most members.

Most tax experts agree that this is ‘a poor tax’ as it breaks many of the ‘rules’ of good tax policy. Part of this is the ‘asset-rich, cash-poor’ position of many owners: £2+m houses do not usually produce income to pay this tax, just large bills (the government is proposing a deferment scheme). And it breaks other tax ‘rules’: it further complicates the tax code; increases UK property taxation (already amongst the world’s highest); HVCTS’s valuation and collection costs will be very high compared to most taxes; the paucity of comparable valuation evidence will lead to disputes and taxpayer uncertainty; and even on Treasury assumptions HVCTS will cut values by 2.5%, reducing revenues from other bigger taxes like inheritance tax, capital gains tax and stamp duty.

In addition, the expectation that the tax’s impact will increase greatly is affecting the market for properties at £1m and less, for example, discouraging the ownership or purchase for repair or improvement of property, especially heritage property, if its post-improvement value might approach or exceed £1m.

More fundamentally, a ‘mansion tax’ contributes to a “don’t buy, live, invest, run businesses, or employ people” message which undermines the UK’s attraction to home-grown and foreign investors. Viewed in isolation, HVCTS raises some revenue (after indirect impacts, mostly likely much less than the envisaged £425m a year), but even small negative effects on the tax take from vastly-bigger taxes like income tax, national insurance, VAT, and stamp duty could lead to net tax revenue losses overall.

The CLA and other lobbying already appears to have had some successes: it seems clear that land and buildings outside the house’s immediate domestic curtilage will be excluded; HVCTS’s valuation basis won’t require (as council tax does) a £100,000 wreck to be valued as if it were a £2m house in good repair; and the tax deferral scheme will probably compound up at or around HMRC’s lower c3% interest rate, not its penal c8% rate.

Working with others, the CLA is responding to the consultation, and meeting the Treasury, seeking in particular heritage, farmhouse, tied accommodation, and other exemptions.