HMRC has recently published a consultation on the design of the High Value Council Tax Surcharge, otherwise known as the mansion tax.
As announced at the 2025 Autumn Budget, the surcharge will be payable by the legal owner of a dwelling valued at £2 million or more and will be in addition to the standard council tax charges. While the Government has considered applying the surcharge to beneficial owners of dwellings, it has been determined that they do not see this as a possible approach due to there being no extensive record of beneficial owners of UK dwellings for local authorities to administer the charges.
Properties will be placed in one of four bands, with the proposed annual charges set out below:
| Threshold (£) | Annual rate (£) |
| 2 million - 2.5 million | 2,500 |
| 2.5 million - 3.5 million | 3,500 |
| 3.5 million - 5 million | 5,000 |
| 5 million plus | 7,500 |
Valuations will be based on the market value of a property in 2026, with revaluations proposed to take place every five years. These will be carried out by the Valuation Office, who are currently undertaking this exercise.
A number of exemptions will be made available for certain residential properties, including purpose-built halls of residence, property owned by a sovereign nation, property owned by a registered social housing provider and care homes. Newly built properties owned by developers will also benefit from an exemption or discount until the earlier of the first sale or twelve months after practical completion.
Given the proposed banding structure, it is anticipated that many valuations, particularly those close to the band thresholds, will be contested by property owners. It has been proposed that homeowners will have the opportunity to submit a challenge to the body making the relevant valuation decision. However, even if a challenge is submitted, the Government has stated that homeowners will remain liable for the tax, with repayments or liabilities amended, only once a decision on the challenge is reached.
Below, we highlighted some of the key points highlighted in the proposed design from HMRC.
Ownership considerations
Corporates
HMRC has confirmed that in most instances, the legal owner of a dwelling will be liable for the surcharge. Where dwellings valued above £2 million are held by corporate entities, the company itself will be liable.
Leasehold interest
The consultation recognises that legal ownership of a dwelling may be split between freeholders or leaseholders.
The current proposal is that where a lease was initially granted for more than 21 years, or where the law treats a lease as having been granted for more than 21 years, then the surcharge liability will sit with the leaseholder.
However, there remains uncertainty where more complex lease structures exist, such as those involving intermediate or ‘blocker’ leases, or stacked lease arrangements.
Properties held in trust
The Government has proposed that trustees will be liable for the surcharge, and where there is more than one trustee, they will be jointly and severally liable.
This is proposed to include situations where a bare trust exists, and beneficiaries and nominees hold the absolute right to property and income derived from the property.
A key consideration here will clearly be how trustees and beneficiaries enter into arrangements to reimburse the trustee for settling the liability.
Proposed deferral scheme
A deferral scheme is proposed for those who are asset-rich but cash-poor. In these circumstances, eligibility for a deferral scheme will be based on thresholds of:
- annual household income of £35,000 or less
- capital savings of £16,000 or less.
The Government anticipates that when the scheme is implemented, a high proportion of owners will seek to defer their liabilities. Owners will be able to defer their liability until the point of change in ownership, which is likely to be the sale of the property or a transfer as part of an estate on death.
Interestingly, the Government are proposing to take charge of dwellings upon which deferral relief has been sought. It will be interesting to hear the thoughts of lenders and property lawyers on this proposed step by the Government as to how this will work in practice.
Additionally, there appears to have been a lack of thought as to the impact on a homeowner’s refinancing ability where a deferred charge is held over the property by the Government.
The Government has also confirmed that interest will be charged on deferred surcharge liabilities, and they are currently proposing an interest rate between 3.75% and 4.75%.
Other key areas for consideration
Non-resident premium
Councils already have the discretion to apply an empty home premium and a second home premium.
The Government is also seeking to apply a premium to High Value Council Tax Surcharges where the owner is a non-UK resident for tax purposes. This may further influence ownership structures, particularly where overseas investors have historically used corporate vehicles to mitigate UK property exposure. It is not clear how this will be applied where the interest is held by a non-resident non-natural person. One option that could be looked at is the SDLT’s definition of non-resident.
High-value properties specifically adapted for medical negligence cases
Another area not clearly addressed within the consultation relates to high-value clinical negligence cases. Often, the payouts from these cases result in a property specifically being modified to support long-term care required by victims of these cases.
If properties are valued at over £2 million, there does not appear to be, within the current proposal, an exemption or full discount under current drafting to provide relief for these situations. This appears to be an unintended consequence of a piece of legislation aimed at targeting wealth with no clear distinction between wealth and compensation. Again, there are precedents within the SDLT legislation to help mitigate mental disability cases.
Conclusion
The proposed High Value Council Tax Surcharge has been positioned as a straightforward, banded annual charge. The consultation illustrates that its application is likely to be more nuanced, with complexity emerging particularly in relation to valuations, ownership structures and the operation of the deferral regime.
While further detail is expected following the consultation, affected homeowners, trustees and corporate property owners should begin assessing their potential exposure and consider the impact on liquidity, particularly where properties are high in value but do not generate income.
Further consideration will be required to ensure the regime does not unintentionally bring properties into scope simply because it is aimed at targeting wealth.
Looking ahead, key issues to watch in relation to this consultation include:
- valuation methodology and dispute resolution process
- practical operation of the deferral scheme and lender response
- scope of exemptions, particularly for care-related and non-standard private residential use.
For more information or to discuss how the proposed High Value Council Tax Surcharge could impact you, please reach out to your usual Crowe contact.
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