A major overhaul of council tax has moved a step closer after ministers launched plans that could raise £430million a year for the Treasury.
The shake-up would see owners of some of England’s most expensive homes hit with thousands of pounds in extra charges.
The Government has launched an eight-week consultation on a new High Value Council Tax Surcharge for properties worth £2million or more, with the changes expected to come into force from April 2028 after first being announced in Chancellor Rachel Reeves’s November 2025 Budget.
Under the plans, homeowners would face extra annual charges ranging from £2,500 to £7,500 depending on the value of their property.
Ministers are also considering a deferral scheme that would allow some low-income homeowners to delay payments until they sell their home or die.
The proposal is aimed partly at pensioners living in high-value properties who previously raised concerns they could struggle to afford the extra costs after retirement.
If adopted, the deferral proposals would mean they could pay the taxman through the sale of the home after they die.
To be able to defer, they will need to prove that either their income or savings are below a certain level.
The Government says the reforms are needed because council tax bands in England have remained unchanged for decades despite soaring house prices, creating situations where multimillion-pound homes can sometimes pay lower bills than ordinary family properties elsewhere in the country.
Dan Tomlinson said: “A £10million mansion in Mayfair should not be paying less council tax than an ordinary family home in Darlington or Blackpool.”
Council tax will go up across the country | GETTY
Under the proposals, homes valued between £2million and £2.5million would face an annual surcharge of £2,500.
Properties worth between £2.5million and £3.5million would pay £3,500 a year, while homes valued between £3.5million and £5million would be charged £5,000 annually.
The Government says the reforms are intended to make the council tax system fairer and ensure owners of high-value properties contribute more.
The highest band applies to homes exceeding £5million in value, with owners paying £7,500 each year. These amounts will increase in line with CPI inflation.
Fewer than one per cent of properties across England will be affected by the surcharge.
Ministers have proposed a deferral scheme allowing some homeowners to delay payments until their property is sold. This option would be available to those who cannot afford the annual charge.
Fewer than one per cent of properties across England will be affected by the surcharge
|
GETTYTo qualify, households must have an annual income of £35,000 or less, or savings below £16,000. The government says these thresholds align with eligibility criteria for other benefits such as Winter Fuel Payments.
A couple receiving only the full new state pension would currently get just over £25,000 yearly, placing them below the income limit.
However, interest will accumulate on any deferred amounts. The consultation proposes several possible rates, including the Bank of England base rate of 3.75 per cent or the 4.75 per cent rate used for adult social care payment deferrals.
Sarah Coles, head of personal finance at AJ Bell, warned that while the surcharge “won’t break the bank for those on high incomes living in expensive properties,” the eligibility requirements for deferral are “remarkably tight.”
She noted that many homeowners earning above £35,000 or holding more than £16,000 in savings could still find it difficult to afford thousands of pounds in additional tax annually.
The interest charged on deferred payments adds further concern. “A relatively punchy interest rate can make a big difference when interest is rolled up,” Coles said, highlighting the potential burden for those who defer over many years.
Property valuations will be conducted every five years to ensure the surcharge reflects current market prices. The first assessment will take place before the 2028 launch, with the next scheduled for 2033.
Notably, the charge applies to property owners rather than residents. This could surprise some leaseholders with long leases or trustees managing properties held in trust, who may not consider themselves owners.
The consultation also asks whether non-UK residents owning qualifying properties should face higher surcharges. Such a move could dampen demand in areas popular with international buyers, potentially affecting expensive London properties.
Ms Coles suggested asset-rich but cash-poor homeowners may accelerate downsizing plans, though selling before the charge begins could prove challenging.