The government has laid out its design of the so-called mansion tax, which would see owners of homes in England worth £2 million or more slapped with an extra charge from April 2028.
Chancellor Rachel Reeves announced plans for the High Value Council Tax Surcharge (HVCTS) in her 2025 Autumn Budget, claiming it would make the council tax system fairer.
The Treasury proposals are now being consulted on.
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Housing Secretary Steve Reed highlighted that under the current council tax system, residents of a band D property in Darlington or Blackpool worth around £400,000 today pay £2,400 to £2,600 annually.
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In comparison, those living in a mansion in Mayfair valued at £10 million in Band H are charged around £2,100 per year.
He said: “Previous governments have known how unjust this is, but failed to act. Through the HVCTS, those who own the most valuable properties in the country will pay their fair share.”
The Treasury estimates that fewer than 1% of residential properties in England will attract the HVCTS, which will be paid alongside council tax bills.
Revenue raised through the HVCTS will be used to support funding for local government services.
How high value homes will be valued for the mansion tax
The Valuation Office (VO) will be conducting a targeted valuation exercise to identify properties in scope by using professional valuers and using industry standard automated valuation models that assess sales data and property attributes.
It will identify homes worth more than £2 million as of April 2026 and adjust for differences between properties include the sale price, property type, size, age, number of rooms and parking.
High value homes will then be placed in four bands.
These start at £2,500 for a property valued in the lowest £2 million to £2.5 million band and go up to £7,500 for a property valued in the highest band of £5 million or more, all uprated by CPI inflation each year.
Revaluations will be conducted by the VO every five years.
Properties built after implementation of the HVCTS but before the next scheduled revaluation will be valued and banded either on completion or from the day they are occupied.
Homes that have been significantly improved or changed after the implementation date, for example by adding a large extension, will be revalued and banded at the sooner of either the next revaluation or sale of the property, the consultation said.
Who will pay the mansion tax?
It will be the owners of a property rather than the occupiers who pay the HVCTS. This means a landlord rather than a tenant would pay the charge if a home worth more than £2 million was being rented out.
This also means leaseholders will be liable for the mansion tax in a high-value home.
Where a property is held in trust for a child, trustees will be liable.
Mansion tax exemptions
There will be some exemptions to the mansion tax such as for individuals who bought or inherited their home but who now have lower income, or those who experience a temporary change in circumstances such as job loss or ill health.
The government said it will make a deferral scheme available which permits payment of HVCTS to be delayed until a property is sold, where individuals meet specific eligibility criteria.
This will be targeted at those on lower incomes – with an income threshold of £35,000 – and not for second homes or to companies that own property.
Deferral will also be available in certain circumstances where the property is the main home of someone who is disabled or severely mentally impaired.
Mansion tax discounts
The government has proposed offering a discount or exemption to charities and also to properties such as halls of residences, property owned by the Ministry of Defence and by organisations predominantly for the accommodation of those seeking refuge from domestic violence.
There may also be discounts for people who own a property tied to their employment.
The consultation said: “In some sectors, particularly agriculture, business owners may need to live on the site where their business operates for practical reasons. For example, a farmer may need to own and live in a home located on their farm.
“Outside agriculture, it is less common for ownership and occupation to coincide. For example, accommodation used to house members of a religious institution is typically owned by the institution rather than those occupying it.”
When would you need to pay the mansion tax?
The HVCTS will be collected by councils at the same time as council tax.
Once the valuations are ready, local authorities will identify owners and send the first bills in March 2028.
You will be able to contact your local authority for information on deferral and discounts in advance of the first bill or at any time if circumstances change.
Can you challenge the mansion tax?
Homeowners will be able to challenge valuations, similar to how you can appeal council tax charges.
If you think you have been incorrectly billed or banded, you will be able to complain to the VO or the local authority.
Homeowners will be given longer than usual to challenge the new High Value Council Tax Surcharge (HVCTS).
The government is providing an initial eight month period to challenge banding rather than the typical six month period for mainstream council tax.
As with council tax, where an individual submits a challenge or appeal they will be required to continue paying HVCTS.
Any overpayments will be refunded or liabilities adjusted if necessary.
Sarah Coles, head of personal finance at AJ Bell, said: “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.”
