The Chancellor has introduced yet another tax on property in her November 2025 budget. Whilst this tax in itself is not particularly onerous, what impact will it have on the property market when combined with all of the existing property taxes? We look at what is being introduced, and how it could affect the market.
What is being introduced?
From April 2028, a new tax will be levied on property owners, being the High Value Council Tax Surcharge (HVCTS). The rates are:
| Threshold (£m) |
Rate (£m) |
| £2.0-2.5 |
£2,500 |
| £2.5-3.5 |
£3,500 |
| £3.5-5 |
£5,000 |
| £5+ |
£7,500 |
Practically, it is easiest to regard the new HVCTS as a second council tax payment which will be levied on owners of properties valued at £2 million or more. Local authorities will collect it, so the expectation is that the collection will be similar to that of Council Tax. However, as the tax applies only to residential properties above a certain value rather than to all property assets, it effectively operates as a targeted property wealth tax.
As for most taxes, the devil is in the detail, of which there is very little so far, though a public consultation is being lined up for early 2026 to work out how to bring the new tax in.
The main detail everyone wants to know is, will their house be caught? There are currently no details on how the Valuation Office will calculate whether a property is valued at £2 million or over. It is anticipated that the Valuation Office will look at properties currently in Council Tax bands F, G and H, as well as looking more broadly to see which properties fall into a £2 million value bracket. Will the Valuation Office include in its scope properties which sell at over £2 million in 2026, or will it make assumptions based on postcodes? Whatever basis is used, revaluations will be done every five years, catching more properties over time.
The Government will provide exemptions, which could include those who may struggle to pay the tax, for example pensioners who have no provisions to cover a new annual tax, or the owners of historic houses who are asset rich but cash poor, and those who have to live in such a property as part of their work.
The consultation will also need to address how the surcharge applies to properties held through complex ownership structures such as trusts, companies, or partnerships which are often used for succession planning, asset protection, or tax efficiency. Clarity on this issue will be important for owners who do not hold property in their personal name and for advisers assisting with future planning and compliance.
What we do know is that the HVCTS rate will increase with CPI inflation each year. This would result in owners of high-value properties seeing their tax liability grow each year, even if property values remained static, simply due to inflation.
How will the new tax affect buyers?
Let's look at this from a geographical perspective, price negotiation perspective, and which type of buyers will be most deterred by it.
Most of the properties valued over £2 million are currently located in London and the South East, so prospective buyers looking in these areas will need to factor in this additional annual cost. The new tax may have limited direct impact on properties being sold elsewhere, and so it could encourage buyers to search in a wider geographical area.
Looking at price negotiations, in the immediate implementation period there is likely to be price bunching just below the thresholds and this may happen every five years when the revaluations are carried out.
For those moving home or for first-time buyers in the £2–£5 million bracket there may be some initial caution as the new tax is factored into purchasing decisions. Buyers at this level are generally well-placed to absorb the additional cost, but the surcharge may prompt some hesitation or more negotiation on price to offset the annual charge. Those purchasing above £5 million are even more likely to be able to accommodate the new tax within their overall budget.
For investors, this represents yet another cost since they are already facing higher property income tax from April 2027 and their freedom to deal with their properties is being restricted by the Renters Rights' Act 2025.
Whilst the new tax may be a consideration for some buyers, it could also create opportunities particularly if prices become more competitive as a result.
How will it affect existing homeowners and sellers?
Existing homeowners who are asset rich and cash poor are likely to be the most affected. They may be able to factor in this extra cost for the first few years, but it could become an increasing burden for them over time. Whilst there is no detail on the exemptions as yet, this may drive a restructuring of how properties are held or see properties being passed more quickly to the next generation.
It remains to be seen how existing second homeowners and investors with property portfolios will respond. It is doubtful the tax is significant enough to lead to widespread price drops or a surge in owners selling up.
If the tax is seen as contributing to falling property valuations, and the amount the tax brings in drops, could we see a U-turn on it in the next few years?
What is our view?
For buyers, the introduction of the HVCTS is unlikely to cause dramatic changes in the short term. Whilst some sellers may adjust their pricing or show greater flexibility in negotiations to reflect the new annual charge, widespread price reductions or a significant increase in properties coming to market as a direct result of the tax appears unlikely.
Buyers in the £2 million plus bracket should factor the new tax into their long-term ownership costs, but for most it will be just one of several considerations alongside stamp duty, running costs, and market conditions. If prices do soften or some buyers are deterred, opportunities may arise for those who are well-prepared and able to act decisively.
Current homeowners may want to see what exemptions are put in place and then consider restructuring how the property is held or step up potential inheritance tax planning.