- The government has today launched a consultation on how a council tax surcharge on English properties worth £2 million or more could work (source: High Value Council Tax Surcharge – GOV.UK)
- Homes worth between £2 million and £2.5 million may pay £2,500 a year, those worth £2.5 million to £3.5 million may pay £3,500, those worth £3.5 million to £5 million £5,000, and those worth over £5 million £7,500
- This is expected to be added on top of council tax from April 2028
- It will be payable by the owner rather than the person living in the property – in some cases this will be the leaseholder
- The consultation outlines a possible deferral scheme for those who cannot afford to pay or for those with severe disabilities
Sarah Coles, head of personal finance at AJ Bell, comments:
“Posh properties are set to become piggy banks when the ‘mansion tax’ kicks in from 2028. The government has started consulting on the details of the so-called high value council tax surcharge, which could bring some nasty surprises for those in the frame for these new annual charges.
“The owners of homes worth between £2 million and £2.5 million will pay £2,500 a year, increasing to £3,500 a year for homes worth £2.5 million to £3.5 million, £5,000 a year for those worth £3.5 million to £5 million and at the top end a charge of £7,500 for homes worth over £5 million. These annual charges will rise with CPI inflation and there will be revaluations every five years.
“The cost won’t break the bank for those on high incomes living in expensive properties and sitting on significant liquid assets. It’s why it appeals to politicians arguing that those with the broadest shoulders should carry a heavier burden.
Deferred payment
“However, not everyone who owns a £2 million property is in this position. For those in expensive homes but on lower incomes and holding fewer assets, the charge is going to be more painful.
“The government is proposing a deferral scheme for these people, so they could let the charges roll up until the home is sold. However, the criteria it’s suggesting is remarkably tight, because household income might have to be no more than £35,000 or total household savings up to a limit of £16,000 in order to qualify. Many people over both these thresholds could struggle to pay thousands of pounds each year in extra tax.
“The rate of interest paid on the outstanding charge will also be key for these groups, which is included as part of the consultation. Among the options the government is considering are the HMRC Official Rate of Interest of 3.75%, the Bank of England base rate in April (also currently 3.75%), or the rate used in deferred payment agreements for adult social care – currently 4.75%. A relatively punchy interest rate can make a big difference when interest is rolled up.
“The government is also consulting on discounts and exemptions. This includes a discount for those who need to live in a property for business reasons, including farmers. It seems that during the inheritance tax row, valuable lessons may have been learned about the importance of considering the needs of this vocal group. There’s also a proposed exemption or discount for charities, hospices, halls of residence, domestic violence refuges, social housing providers, the Ministry of Defence, and for diplomatic residences.
Owners not residents
“It’s worth noting that the charge falls on property owners rather than necessarily the person living in the property. In the vast majority of cases, these properties are lived in by their owners, but by no means is this the case for all of them. There might also be something of a shock for people who don’t consider themselves to be owners. This could include leaseholders where the property was granted a long lease and trustees where a property has been put into trust.
Impact on property prices
“This additional tax could have a knock-on impact on the property market, and damage demand for more expensive homes. The consultation is also asking whether people who own a qualifying property but aren’t a resident in the UK could face a higher surcharge. This would likely have a more significant impact on property demand in places with a higher number of international buyers – and could mean expensive London mansions take a hit.
“There will be plenty of people breaking out the world’s smallest violins for those in expensive homes. However, it could cause problems for people who are asset rich but cash poor. They may decide to bring forward any downsizing plans, and then struggle to sell before the charge kicks in.”
