Understanding Current Corporation Tax Rates and Marginal Relief in the UK

Budget 2025: The New High-Value Property Council Tax Surcharge

What Property Owners and Landlords Need to Know About the £2 Million+ Threshold

Published: 27 November 2025 | Updated following Budget 2025

Quick Summary

From April 2028, owners of residential properties in England valued at £2 million or more will pay an annual High-Value Council Tax Surcharge (HVCTS) ranging from £2,500 to £75,000, collected alongside standard council tax. This affects fewer than 1% of properties but has significant implications for luxury homeowners, landlords, and overseas investors.

What Is the High-Value Council Tax Surcharge?

Chancellor Rachel Reeves announced the High-Value Council Tax Surcharge in Budget 2025 as part of measures to make the tax system fairer. The surcharge addresses a longstanding anomaly whereby a typical Band D family home in many areas pays more council tax than properties worth £10 million in affluent areas like Westminster.

The HVCTS is charged on top of existing council tax bills and applies specifically to high-value residential properties in England. The charge is levied on property owners, not occupiers, marking a significant departure from traditional council tax liability.

The Charge Rates and Thresholds

The surcharge operates on a tiered system based on property valuation:

Property Value	Annual Surcharge	Approximate Monthly Cost
£2 million – £2.99 million	£2,500	£208
£3 million – £3.99 million	£10,000	£833
£4 million – £4.99 million	£25,000	£2,083
£5 million+	£75,000	£6,250

⚠️ Important: Who Pays?

Unlike standard council tax (paid by occupiers), the HVCTS is charged directly to property owners. This means landlords cannot pass this cost to tenants through increased rent without explicit agreement, making it a direct hit to rental property investment returns.

Implementation Timeline

Understanding the timeline is crucial for planning purposes:

• November 2025: Budget announcement and consultation launch
• Early 2026: Government consultation on detailed implementation, including support mechanisms and deferral options
• 2026-2027: Property revaluation exercise conducted to identify properties exceeding thresholds
• April 2027: Initial assessments and notification to property owners
• April 2028: First HVCTS charges become payable

The government has indicated that updated valuations will be used to determine eligibility, reflecting current market values rather than outdated council tax bandings from 1991.

Who Is Affected? Winners and Losers

❌ Clear Losers

• London luxury property owners
• Buy-to-let landlords with high-value portfolios
• Overseas property investors
• Second home owners in prime locations
• Inherited wealth property holders

✓ Potential Winners

• Average homeowners (no change)
• Properties under £2m threshold
• Local authority services (funded by revenue)
• Buyers of sub-£2m properties (reduced competition)

Impact on Different Property Sectors

1. Luxury Buy-to-Let Market

The HVCTS fundamentally changes the economics of high-value buy-to-let investment. A landlord owning a £3.5 million rental property in prime Central London will face:

• Annual HVCTS: £10,000
• Standard council tax (Band H): Approximately £2,500
• Total property taxation: £12,500 per annum

This represents a significant additional cost that cannot be offset against rental income for tax purposes in the same way as mortgage interest or maintenance costs. With gross rental yields on prime London properties typically 2-3%, an additional £10,000 annual charge materially impacts returns.

Landlord Planning Considerations

• Yield Compression: Calculate whether rental income justifies holding high-value property versus alternative investments
• Portfolio Restructuring: Consider selling properties approaching the £2m threshold and diversifying into multiple sub-threshold properties
• Corporate Ownership Review: Assess whether holding via limited companies offers any mitigation (note: the charge applies to owners regardless of structure)
• Tenant Communication: Build anticipated costs into rental negotiations from 2027 onwards

2. Overseas and Non-Resident Owners

Foreign investors and non-residents owning UK property face particular challenges. The HVCTS compounds existing disadvantages including:

• 2% Stamp Duty Land Tax surcharge for non-UK residents (existing)
• 3% additional Stamp Duty for additional properties (existing)
• Annual Tax on Enveloped Dwellings (ATED) for properties held in companies valued over £500,000 (existing)
• New HVCTS from 2028

An overseas investor purchasing a £6 million London property as a second home now faces cumulative annual holding costs of approximately £77,500 in council tax and HVCTS alone, before factoring maintenance, insurance, or mortgage costs.

3. Prime London Property Market

Central London boroughs—particularly Westminster, Kensington & Chelsea, Camden, and Islington—will see the highest concentration of affected properties. Government analysis suggests fewer than 1% of properties nationally will be caught, but in certain postcode areas this could exceed 20-30%.

Market implications include:

• Price Compression: Properties marginally above the £2m threshold may see price reductions as buyers factor in ongoing surcharge costs
• Threshold Clustering: Expect increased demand for properties valued just below £2m, £3m, £4m, and £5m thresholds
• Increased Sales Activity: Owners looking to crystallise value before 2028 implementation may increase supply from late 2026
• Development Impact: Luxury new-build developments may need pricing strategies acknowledging HVCTS implications

4. Inherited and Family Properties

The government consultation acknowledges particular hardship scenarios where property owners are asset-rich but income-poor. Examples include:

• Elderly individuals living in properties that have appreciated significantly over decades
• Inherited family homes where occupiers cannot afford the annual charge
• Properties with significant sentimental value but limited liquidity

The consultation explicitly seeks views on "support or deferral" options for such cases. Potential mechanisms may include:

• Deferral schemes where charges accrue as a charge against the property, payable on sale or death
• Income-related relief for owner-occupiers meeting specific criteria
• Exemptions for properties held in trust for vulnerable beneficiaries

Tax Planning Strategies

Property owners and advisers should consider the following strategies ahead of the 2028 implementation:

1. Valuation Management

Properties valued near thresholds should obtain professional valuations. Where justified, engaging with the Valuation Office Agency to challenge assessments may reduce liability. However, bear in mind that revaluation cuts both ways—undervalued properties may see increases.

2. Ownership Restructuring

While the HVCTS applies to owners regardless of structure, reviewing ownership arrangements may identify planning opportunities:

• Splitting Properties: Converting single high-value properties into multiple flats (subject to planning) could create multiple sub-threshold units
• Joint Ownership: Consider implications of transferring partial ownership to family members (noting potential Capital Gains Tax and Inheritance Tax implications)
• Offshore Structures: Existing offshore company structures face ATED charges; the addition of HVCTS requires comprehensive cost-benefit analysis

3. Portfolio Optimisation

For property investors and landlords, strategic portfolio reviews should assess:

• Whether high-value properties should be sold pre-2028 to avoid HVCTS and reinvested in multiple properties below thresholds
• After-tax returns accounting for HVCTS versus alternative asset classes
• Geographic diversification outside London and high-value areas
• Timing of acquisitions and disposals relative to the 2028 implementation date

4. Cashflow and Liquidity Planning

Property owners should model cashflow implications from 2028, particularly those with:

• Multiple high-value properties facing cumulative charges
• Leveraged portfolios where additional costs impact debt servicing capacity
• Fixed incomes where annual charges represent significant percentage of income

Revenue and Regional Distribution

The HVCTS is forecast to raise over £400 million annually by 2030-31. The Budget documents confirm this revenue will support local government services, with distribution methodology to be confirmed at the next Spending Review.

Notably, while the charge is collected by local authorities, revenue will be remitted to central government then redistributed. This avoids creating perverse incentives for property value inflation in wealthy boroughs.

Comparison with International Jurisdictions

The UK is not alone in implementing higher taxation on valuable property:

• United States: Property taxes are typically 1-2% of property value annually in many states
• France: Wealth tax on real estate (IFI) applies progressive rates up to 1.5% on property wealth exceeding €1.3m
• Switzerland: Most cantons levy annual wealth taxes including real property
• Spain: Non-residents pay annual wealth tax on Spanish property exceeding thresholds

The HVCTS is relatively modest by international standards, though it compounds rather than replaces existing UK property taxation.

Practical Action Points

Immediate Actions (Before April 2026)

1. Property Valuation: Obtain professional valuations for properties potentially near thresholds
2. Portfolio Review: Comprehensive review of all property holdings and after-tax returns
3. Strategic Planning: Engage qualified accountants and tax advisers to model scenarios
4. Monitor Consultation: Respond to government consultation if affected; key reliefs may depend on consultation feedback
5. Liquidity Assessment: Ensure sufficient cash reserves or income to meet charges from April 2028

Medium-Term Actions (2026-2027)

1. Await Revaluation Results: Government will notify owners following revaluation exercise
2. Challenge if Appropriate: If assessed valuation appears excessive, prepare challenge evidence
3. Finalise Strategy: Make disposal or restructuring decisions with implementation date in mind
4. Tenant Negotiations: Landlords should factor HVCTS into rental renewals and new tenancy agreements
5. Estate Planning: Consider implications for inheritance tax and lifetime gifting strategies

Potential Challenges and Uncertainties

Several aspects remain subject to consultation and clarification:

• Valuation Methodology: How frequently will properties be revalued? Will this be automatic or triggered by transactions?
• Mixed-Use Properties: Treatment of properties with both residential and commercial elements
• Development Sites: Whether properties undergoing substantial renovation qualify for temporary relief
• Charitable and Institutional Ownership: Any exemptions for properties owned by charitable organisations or similar entities
• Dispute Resolution: Appeal mechanisms and timeframes for contesting valuations or assessments

Conclusion

The High-Value Council Tax Surcharge represents the most significant change to UK residential property taxation in decades. While affecting fewer than 1% of properties, its impact on the luxury property market, high-net-worth individuals, and property investment strategies will be substantial.

Property owners should act now to understand their exposure, model financial implications, and implement appropriate planning strategies. The 2026 consultation and subsequent guidance will refine implementation details, but the core structure and rates are now confirmed.

For landlords and investors, the HVCTS fundamentally changes the economics of high-value property investment and requires comprehensive portfolio review. For owner-occupiers, particularly those asset-rich but income-poor, early engagement with the consultation process and understanding of available reliefs will be crucial.

Need Expert Guidance on Property Tax Planning?

The High-Value Council Tax Surcharge requires careful planning and expert analysis. Our specialist team at MA & Co Accountants can help you:

• Model the financial impact on your property portfolio
• Develop tax-efficient restructuring strategies
• Identify planning opportunities ahead of the 2028 deadline
• Navigate valuation challenges and appeals processes
• Integrate property tax planning with broader financial goals

Book Your Free Consultation Visit MA & Co Accountants

Contact us today for a complimentary initial discussion of your circumstances and planning options.