UK Government Considers Council Tax Hikes for High-Value Homes

Owners of expensive homes in the United Kingdom may face increased property taxes as the government considers changes to both council tax and the existing mansion tax. Chancellor John Healey has indicated that the government is reviewing its approach to council tax, with a possibility of introducing higher bands for "extremely valuable properties."

Council tax, which generates approximately £47 billion annually, is being examined as a potential source for increased revenue. The Treasury's Valuation Office Agency is reportedly reviewing properties in the highest council tax bands (F, G, and H) to identify those that could be subject to the mansion tax. Current property valuations for council tax purposes were set in 1991. Since then, house prices, particularly in London, have risen significantly, leading to a situation where high-value homes in the capital may have disproportionately lower council tax bills compared to less expensive properties in areas where prices have not appreciated as much.

A report from the Resolution Foundation think-tank claimed that London underpaid an estimated £3.1 billion in council tax in the 2024-25 fiscal year due to the lower rates applied to its properties. The report suggested that if homes in other regions were taxed at London rates, households nationwide could see a collective tax cut of £12.3 billion. For example, a band H property in Hammersmith and Fulham, west London, has an annual council tax bill of £3,039, which is less than the £3,072 annual bill for a less valuable band E property in Blackpool.

Currently, a band H property is taxed at twice the rate of a band D home. Robert Salter, a partner at accountancy firm Blick Rothenberg, described this system as "inequitable" and suggested that higher bills for band H homes could generate substantial funds for local authorities. The think-tank Tax Policy Associates noted that extending higher council tax rates to band G properties, which include a significantly larger number of homes than band H, could yield further revenue.

Discussions about council tax reform coincide with reports that Healey is also considering lowering the threshold for the mansion tax from £2 million to £1.5 million. Such a change could increase the number of homes liable for the levy from 135,000 to 272,000, according to estimates by Hamptons. However, the estate agent also noted that the property market gloom in affluent areas, where house prices are falling, might mean 10,000 fewer homes are affected by the mansion tax than initially projected since its introduction in the previous year's Budget.

The mansion tax, officially known as the High Value Council Tax Surcharge, is set to take effect in April 2028, with revenues directed to central government. Healey might also increase the existing mansion tax rates, which currently range from £2,500 per year for properties valued between £2 million and £2.5 million, up to £7,000 per year for homes valued at £5 million or more. These charges are scheduled to be adjusted every five years in line with inflation.

Protect Your Money Plan

As the Budget approaches, homeowners and investors are being advised to prepare for potential financial policy changes. A six-week plan titled "Protect Your Money" has been developed to guide individuals through steps to safeguard their finances against potential tax measures. Subscribers to This is Money can access this plan for free.