UK Considers Council Tax and Mansion Tax Overhaul on High-Value Properties

Owners of high-value homes in the United Kingdom may face increased tax burdens as Chancellor John Healey considers significant changes to both council tax and the mansion tax.

The government is reportedly re-evaluating its approach to council tax, with potential adjustments for properties deemed "extremely valuable." This move comes as the Treasury's Valuation Office Agency reviews homes in the highest council tax bands (F, G, and H) to identify those subject to the mansion tax.

The current council tax valuations were established in 1991. Since then, property values, particularly in London, have seen substantial increases. This disparity means that properties now worth millions in the capital could have relatively low council tax bills compared to less expensive homes in areas where property values have not risen as dramatically. A report from the Resolution Foundation think-tank claimed that London "underpaid £3.1 billion" in council tax during the 2024-25 fiscal year due to lower rates in the city. The report suggested that if other regions taxed homes at London rates, households nationwide would benefit from a "£12.3 billion tax cut."

As an example, the annual council tax for a band H property in Hammersmith and Fulham, London, is £3,039. This is less than the £3,072 annual bill for a less valuable band E property in Blackpool. Currently, the council tax on a band H property is double that of a band D home.

Experts suggest that introducing higher council tax bands for the most valuable homes could generate billions for local authorities. Tax Policy Associates noted that taxing band G properties more could significantly increase revenue, as this band encompasses approximately eight times more homes than band H.

In addition to potential council tax reforms, Healey is also reportedly considering lowering the mansion tax threshold from £2 million to £1.5 million. However, this proposed change would disproportionately affect London constituencies held by Labour MPs. Calculations by Hamptons estate agents indicate that this adjustment could nearly double the number of homes liable for the levy, from 135,000 to 272,000.

The mansion tax, officially termed the High Value Council Tax Surcharge, is set to take effect in April 2028, with revenues directed to central government coffers. The existing charges for this levy range from £2,500 annually for properties valued between £2 million and £2.5 million, up to £7,000 annually for homes priced at £5 million or more. These charges are slated to be adjusted every five years in line with inflation.

The potential tax changes are being discussed as part of the upcoming Budget, with sources indicating that the government is exploring multiple avenues to increase revenue from high-value properties.