Reacting to the measure confirmed by the Chancellor in the Autumn Budget today, Rob Clifford, chief executive of Stonebridge, said the High Value Council Tax Surcharge (HVCTS) amounted to a “wealth tax” on higher-value homes.
He said it felt like a “short-term revenue-raising measure” to “plug a fiscal gap”, adding: “Few would dispute that owners of more valuable properties should contribute more.”
Clifford said the concern was over the government’s approach, and a “sensible long-term and fairer solution” to reform the whole system would be better than more complexity.
He noted that the change offered “little benefit to anyone” and could cause market distortions at the value boundaries.
This echoed the Office for Budget Responsibility’s (OBR’s) assumption that it could lead to “price bunching”.
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Andrew Lloyd, managing director at Search Acumen, said the surcharge appeared to be a “desire to redistribute regional mobility and bridge the wealth divide”, rather than create transactional peaks and troughs like the stamp duty change would have.
He added: “Whilst this will be difficult to implement, the three years until it comes into effect will allow careful planning if managed correctly. A fully digitalised Land Registry will certainly aid this process and support the monumental task of revaluations of hundreds of thousands of homes.”
Potential problems
Lloyd said the way valuations would take place could be a concern, as well as “how legally binding they may be”.
“If we see higher-value homes reduce in price over a sustained period of time between now and 2028, there is likely to be some pushback,” he added.
Jonathan Handford, managing director at Fine & Country, said the practicalities of the tax could “prove far more challenging than the headline suggests”.
He said many homes at this level had not been sold in decades, so it could be hard to prove an accurate, current valuation.
Handford said: “To avoid confusion, the government will need to set out clearly how these assessments will be carried out and how any disputes will be handled.
“One of the big unknowns is how homeowners might respond. There will undoubtedly be conversations about whether properties could be restructured, and we may well see a rise in splitting titles to bring them under the threshold.
“A savvy owner with a single home worth £2m splitting the title to become two homes worth £1m each is not as far-fetched as it sounds, especially if the incentive to reduce liability is strong enough. Until the full details are published, it’s impossible to know what loopholes will be allowed.”
Handford predicted there would not be a rush of sellers trying to beat the deadline as they would play the long game instead, adding that if the tax was implemented carefully, it would have a limited impact on market activity.
Freezing activity at the top of the housing market
Paula Higgins, CEO of the HomeOwners Alliance, said the tax could cause an immediate freeze at the top end of the market as buyers and sellers waited for the outcome of valuations.
She said the organisation was “sceptical” about whether the revaluation needed would be “delivered cleanly and on time” and a mass revaluation of bands F to H would “inevitably trigger large numbers of appeals”.
Higgins added that there was a risk of thresholds not being updated, which could leave more people paying tax.
Zara Bray, mortgage expert at Quilter, said that as markets moved, homeowners could “drift into or out of liability”, increasing the likelihood of disputes and complicated planning. She added that it could also influence behaviour at the margins, with people delaying improvements or moves or holding on to unsuitable properties.
“This kind of friction at the top end of the market can ripple through chains, reducing mobility more widely,” Bray added.
Not all high-value homeowners have spare cash
Higgins said it was key to remember that not everyone living in a high-value home was cash-rich, adding: “Many are stretched, still paying big mortgages, and have simply ridden a wave of rising prices. A mansion tax would freeze investment in homes over £1m overnight, as owners hold back on improvements to avoid being pushed over a threshold the government will almost certainly freeze.”
Dave Harris, CEO of More2Life, said for older homeowners, there could be “real concern” over how to manage their increased outgoings.
“Being able to tap into their most valuable asset – their home – is only going to become more important due to these rising costs, and we need to ensure they are signposted effectively to advisers so they can get the professional support they need,” Harris said.
Will Hale, CEO of Key Advice and Air, said many taxes were extended and caught more people after being implemented, particularly when considering house price inflation and frozen thresholds.
Hale added: “Many older homeowners are asset-rich but cash-poor and will struggle to pay the HVCTS without compromising lifestyle objectives. This new tax will undoubtedly put considerable financial strain on many older people who have lived in their homes for many years but who don’t have enough income to pay additional taxes.”
Bray said a rising valuation did not guarantee the liquidity of homeowners, and many households would have seen the value of their homes “rise sharply over time without a corresponding rise in income”.
She added: “Treating the property alone as evidence of financial capacity risks placing considerable pressure on those whose wealth is tied up in housing rather than accessible funds.”
Jonathan Stinton, head of intermediary relationships at Coventry Building Society, said while the levy would impact the “very top end of the market”, the impact could be broader.
He added that, particularly in London, a £2m property did not mean someone was “sitting on piles of cash”.
Stinton added: “Many homeowners in that bracket are asset-rich but cash-poor, and a yearly bill could be a real shock to the system.
“Some homeowners in high-value properties may try to sell to avoid the extra cost – but finding buyers for expensive homes isn’t always easy. If those sales do go through, it could unleash a wave of demand for mid-priced family homes as sellers move down the ladder.
“That surge in demand could push up prices in the middle of the market, even as the top end cools. It’s a reminder that changes aimed at the wealthiest households can end up reshaping the whole housing chain.”
Hollingworth added: “However, that doesn’t mean that buyer behaviour won’t be affected. We will have to see if buyers will swallow the charge or negotiate harder with vendors to drop their offer, to offset the additional running cost.
“The annual charges look to be set at a level to avoid creating a significant disruption. Even five years of the new charge on a £2m property would amount to well below 1% of the property valuation.
“However, it’s worth noting that charges will be increased in line with CPI inflation from 2029. It’s also suggested that properties will be revalued every five years, which could presumably see properties edge into higher bandings or make more properties subject to the surcharge.”
