The mansion tax that already exists

While everybody argues about whether we're going to get a wealth tax, one has already been announced. It starts in April 2028, and the valuations being used are 2026 values.

If you own a home in England worth anywhere near two million pounds, there's something worth doing in the next few months. It costs a few hundred pounds and it could save you thousands a year for as long as you own the property.

I will come to what it's. First you need to understand what's coming, because a surprising number of people have no idea this exists.

Keir Starmer and Rachel Reeves may both be gone, but one of the policies they announced is still arriving, and it takes effect from April 2028.

Its official name is the High Value Council Tax Surcharge, which is a deliberately unexciting name for what's in substance a mansion tax.

What it is

If you own a home in England worth two million pounds or more, you'll pay an annual charge on top of your existing council tax. Not instead of it. On top of it.

There are four bands.

A property worth between two million and two and a half million pays £2,500 a year.

Between two and a half million and three and a half million, £3,500.

Between three and a half million and five million, £5,000.

Anything above five million, £7,500.

The charges rise with inflation each year. There's nothing to suggest the band thresholds will do the same, which over time will pull more properties into scope without any announcement being made.

Two things people get wrong

The first is the valuation date. The values being used are 2026 values. Your house is being assessed on what it's worth now, for a bill that doesn't arrive until 2028.

The second is that it has nothing whatsoever to do with your existing council tax band. Council tax bands in England still run on 1991 values. This is a completely separate valuation exercise. Being in Band H doesn't mean you're caught, and not being in Band H doesn't mean you're safe.

Two further points worth knowing. It's charged on the owner rather than the occupier. And although your council issues the bill and collects the money, your council doesn't keep it. It goes to central government.

How much it actually raises

About £430 million a year.

For comparison, council tax on its own raises somewhere around £45 billion. So this entire new tax, with its new valuations, new bands and new appeals process, brings in roughly one percent of what council tax already collects.

And that's the figure before costs. Councils are being fully compensated for administering it, which comes out of the same pot. There's a support scheme for people who can't afford to pay, which the Office for Budget Responsibility estimates reduces revenue by around nine percent. Behavioural effects reduce the number of properties in scope further still.

So this isn't a tax designed to raise money. The numbers are far too small to matter in the context of public finances.

Which raises the obvious question of why do it at all.

What it really is

It's a wealth tax, or at least the shape of one.

It doesn't tax your income and it doesn't tax a transaction. It taxes you every single year for owning something valuable, whether or not that thing produces a penny of income for you. It has simply been given a name that makes it sound like an administrative adjustment to council tax.

Politically that makes complete sense. A government under pressure wants to be seen asking more from people with expensive houses. £430 million doesn't fix anything, but it was never meant to.

The difficulty with tax rises driven by principle rather than revenue is that they tend to discourage transactions. Somebody in a house worth £1.5 million who could afford to move up may now think twice about it. That helps nobody.

Who it actually hits

Landlords get the worst of it, because the charge falls on the owner rather than the occupier. If you own high value residential property that's let out, this is an annual cost landing on you rather than your tenant, on top of everything else that has been directed at landlords over the past decade.

Then there's the asset rich, cash poor problem. Somebody who bought a family home in the eighties for a fraction of what it's worth today, now living on a pension, could easily be sitting in a two or three million pound house. Their income hasn't changed at all, but there's now an annual bill attached to the property that bears no relationship to what they can afford.

The valuation problem

To make this work, the Valuation Office will need to value around 165,000 properties, and the vast majority of that will be done from a desk using comparable sales.

Except these are precisely the properties where comparables barely exist. A three million pound house isn't a three bed semi with twenty identical ones on the same street.

Which is why the OBR, when it costed the measure, provisionally assumed that forty percent of appeals would succeed. Its stated reason was that the bands are narrow and the properties are worth considerably more than typical council tax cases.

That's worth pausing on. The government's own forecaster has built in an assumption that four out of every ten challenges will win, before a single bill has been issued.

The cliff edges

These are flat charges rather than percentages, which means every threshold is a hard cliff edge.

A house valued at £1.95 million pays nothing extra at all. The same house valued at £2.05 million pays £2,500 a year, indexed, for as long as you own it. That's the difference between a recurring annual charge and no charge whatsoever, turning on a valuation somebody produced from a screen.

The OBR has already said it expects house prices to cluster just below the thresholds, which is exactly what you would expect.

What you should do now

If you own a home in England anywhere near two million pounds, work out roughly where you sit. Comfortably under and there's nothing to worry about. Comfortably over and it's a cost to budget for.

But if you're anywhere near a threshold, get your own valuation from a chartered surveyor now, and keep it.

The reason the timing matters is that the figure being used is a 2026 value while the bill doesn't arrive until 2028. If you want to challenge it, you'll be trying to prove in 2028 what your house was worth two years earlier. That's a considerably weaker position than holding a professional valuation dated at the time, prepared while the evidence was fresh.

Given the scale of the exercise and the fact that most of it will be done remotely, errors are likely. The OBR has effectively said as much. And because of the cliff edges, a relatively small error in valuation produces a disproportionate result.

A few hundred pounds on a valuation now is cheap insurance against that.

What is actually being built

Whatever your view on whether expensive houses should be paying more, it's worth noticing what this creates.

To make an annual property tax work, the government needs current valuations across the country, bands to put those valuations into, a collection mechanism, and a process for keeping it up to date, which is why there's a revaluation built in every five years.

That's the hard part of any annual property tax. Not the rate, the machinery.

And once the machinery exists, changing what you do with it becomes straightforward. Lowering the threshold from £2 million to £1.5 million is a single line in a Budget speech. So the two people who announced this are no longer in office, but the system they have set up will outlast them both.

If you own high value property and want to understand where you stand, get in touch with us at Saymur.