The HVCTS was announced at last year’s Autumn Budget and will be imposed on homeowners of residential properties in England worth £2m from April 2028.
The Office for Budget Responsibility (OBR) said the surcharge would raise £400m in 2029-30 and add £500m to council tax receipts. It also admitted this could lead to “price bunching” at value boundaries and see some properties move into lower-charging bands.
The government is seeking views on how an owner should be defined, support for those who cannot pay the HVCTS, and property discounts and exemptions.
It is also consulting on how a homeowner can challenge their banding or liability, assess the impact of the policy on those with protected characteristics and how valuations could be approached.
The government said properties would be valued every five years, and proposed the bandings would be a £2,500 surcharge for properties worth £2m-2.5m, £3,500 for properties worth £2.5m-3.5m, £5,000 for properties worth £3.5m-5m, and £7,500 for homes worth more than £5m. Charges will rise in line with Consumer Prices Index (CPI) inflation.
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Who is liable and what support is available?
Owners will be defined as the legal owner of a property, whether they are a freeholder or a leaseholder. Where they are joint owners, they will be jointly liable, and where a property is owned by a company, the company will be legally liable.
Long leaseholders may also be liable for HVCTS.
The government said liability for HVCTS depended on the value of the property, rather than the income of the owner, so some homeowners may struggle with the costs.
The discounts and exemptions available within the wider council tax regime will not be available for HVCTS, but a deferral scheme could be introduced.
It has proposed allowing people with a household income of less than £35,000 and savings of less than £16,000 to be eligible for a deferral. A deferral may also be possible where an owner is disabled or severely mentally impaired.
Liability of HVCTS could be deferred until there is a change of ownership, but owners will have the option to end deferral at any point.
Discounts of up to 100% could be available to halls of residence, property owned by the Ministry of Defence for the use of armed forces, property owned by a sovereign nation for the use of diplomats, property owned by a social housing provider, long-term care accommodation and property used for those seeking refuge from domestic violence.
Added pressure on average-income households
Sarah Coles, head of personal finance at AJ Bell, said: “The cost won’t break the bank for those on high incomes living in expensive properties and sitting on significant liquid assets. It’s why it appeals to politicians, arguing that those with the broadest shoulders should carry a heavier burden.
“However, not everyone who owns a £2m property is in this position. For those in expensive homes but on lower incomes and holding fewer assets, the charge is going to be more painful.”
Coles said the deferral scheme meant the charges would roll up until a home is sold, but added that the criteria suggested were “remarkably tight”.
She said many people with household incomes above £35,000 and with savings of more than £16,000 could struggle to pay the extra tax.
“The rate of interest paid on the outstanding charge will also be key for these groups, which is included as part of the consultation”, Coles said, adding: “Among the options the government is considering are the HMRC Official Rate of Interest of 3.75%, the Bank of England base rate in April, also currently 3.75%, or the rate used in deferred payment agreements for adult social care – currently 4.75%. A relatively punchy interest rate can make a big difference when interest is rolled up.”
Damaging demand for expensive homes
Coles said the additional tax could have a knock-on impact on the property market and damage demand for expensive homes.
She added: “The consultation is also asking whether people who own a qualifying property but aren’t resident in the UK could face a higher surcharge. This would likely have a more significant impact on property demand in places with a higher number of international buyers – and could mean expensive London mansions take a hit.
“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.”
