Council tax overhaul set to target luxury properties in UK Budget 2025 plan

The Treasury is reportedly preparing plans to update the valuation of homes in the highest three council tax bands, F to H, as part of the upcoming Budget 2025. For more than three decades, council tax has been based on property valuations from 1991, creating growing calls for fundamental reform.

Under the draft proposals, all homes valued above a threshold, expected to be set between £1 million and £2 million, may be subject to an added flat-rate annual charge estimated at £2,000 to £3,000. This measure, described by some as a mansion tax, would apply in addition to existing council tax bills. Revenue raised would flow directly to the Treasury, not local councils.

Industry experts argue that a partial revaluation of only the highest bands could increase complexity within the property tax system. Helen Miller of the Institute for Fiscal Studies noted that such incremental changes do not address the underlying issues with council tax valuations. Calls from organisations such as the New Economics Foundation reinforce the need for a comprehensive revaluation of the entire housing stock, rather than piecemeal adjustments.

Successive governments have previously avoided a full council tax revaluation over concerns about electoral backlash, particularly from homeowners whose payments would rise. Some Labour MPs highlight cases of asset-rich but cash-poor households, emphasising the need for deferral schemes allowing payment of the new charge from an estate after death.

Rachel Reeves, the Chancellor, has stated that higher contributions will be expected from those best able to pay. However, the precise valuation threshold and implementation date for the proposed levy remain unconfirmed. The policy aims to deliver a fairer and more progressive system of property taxation, complementing other measures to reduce the cost of living and increase public service funding.

The Institute for Public Policy Research suggests that a broader reform could raise up to £3 billion annually for the Treasury, allowing for targeted reductions in council tax for less valuable properties. The proposed mansion tax, if implemented, is likely to generate under £1 billion per year. Householders would be provided time to prepare for the changes before they take effect.

Among additional Budget measures, Reeves has announced an extension of the freeze on NHS prescription charges for another year, keeping the fee at £9.90. This is part of a wider strategy to support struggling households and reduce inflationary pressure in the economy.