In a significant move that alters the UK's property tax landscape, Chancellor Rachel Reeves has announced a new 'high value council tax surcharge' for the most expensive homes in the country.
The New Mansion Tax Explained
During her Budget speech on Wednesday, 26th November 2025, the Chancellor confirmed the introduction of what is being termed a 'mansion tax'. This measure will impose a surcharge on residential properties valued at more than £2 million.
The new system will be structured into four distinct price bands. The annual charges are set as follows:
- £2,500 for properties valued between £2 million and £2.5 million.
- A rising scale for higher value brackets.
- £7,500 for properties valued at £5 million or more.
Crucially, these surcharge amounts will be uprated by inflation each year, ensuring their real-term value is maintained. The Treasury forecasts that this new levy will raise £0.4 billion in the 2029-30 financial year.
Funding and Further Tax Changes
In a departure from the standard council tax procedure, all revenue from this surcharge will go directly to central Government, rather than being distributed to local authorities.
Ms Reeves also used her speech to address what she described as unfairness in the tax system, particularly concerning landlords. She told the Commons: "Currently, a landlord with an income of £25,000 will pay nearly £1,200 less in tax than their tenant with the same salary because no National Insurance is charged on property, dividend or savings income."
To rectify this, the Chancellor announced an increase to the basic and higher rates of tax on property, savings, and dividend income by two percentage points. The additional rate of tax on property and savings income will also see a two percentage point increase.
Implications for the Property Market
This new surcharge represents the most substantial change to council tax in a generation, specifically targeting the premium segment of the housing market. The move is likely to have significant consequences for owners of high-value properties and could influence investment decisions in the UK's luxury real estate sector. By directing funds to the Treasury, the government is positioning this as a key measure for national fiscal policy, rather than localised funding.
