Matthew Henderson
Associate Director, Residential Research
A new council tax surcharge for homes worth more than £2m was among a raft of policies confirmed by the Chancellor, Rachel Reeves, in her much-anticipated Budget.
The announcements bring an end to months of mounting speculation about potential property tax changes.
Despite negative kite-flying in the run up to 26th November, the Budget did not hit the housing market as hard as many had feared.
And it brought much-needed clarity for buyers and sellers, many of whom have been on the sidelines in recent months.
Claire Reynolds, National Head of Sales, says the Budget has “shifted the mood almost instantly and the exhale of relief was palpable. It feels that we’ve been handed a landscape that’s far more encouraging and stable than expected.”
“Confidence doesn’t usually return overnight, but this feels different; we’ve seen instant signs of a ‘recovery’. I’ve already received several enquiries from people ready to give the green light on their sale or purchase,” she adds.
Matt Henderson, Residential Research, adds that the delayed implementation of the major housing policies announced - the council tax surcharge and an increase in property income tax - will allow them to be slowly absorbed into the housing market, softening the impact.
So, here are the key announcements that affect the housing market and what they might mean for you.
High value council tax surcharge introduced
Reeves confirmed plans to introduce a surcharge on the most expensive homes in England.
The Chancellor announced that owners of homes worth £2m or more will face the High Value Council Tax Surcharge (HVCTS) in addition to existing council tax. It is expected to impact less than 1% of homes in England.
The surcharge will kick in from April 2028 once the Valuation Office has reviewed all the properties in the council tax bands F, G and H, and identified those above £2m.
Under the plans, homes above the threshold will be placed into one of four bands according to their property value:
| Threshold (£m) | Rate (£) |
| £2.0-2.5 | £2,500 |
| £2.5-3.5 | £3,500 |
| £3.5-5.0 | £5,000 |
| £5+ | £7,500 |
Source: Treasury Factsheet
Local authorities are set to collect the revenue on behalf of central government. Charges will rise in line with CPI inflation each year from 2029-30.
The government is expected to look at options to cushion the impact for some households. It has been indicated that people may be able to defer the surcharge until they move home or pass away; whether interest will be due on deferred charges is yet to be seen. There will also be an opportunity to challenge the valuations for those who believe they are in an incorrect threshold.
The announcement is likely to fuel a bounce back in housing market activity, with many buyers and sellers who had previously hit the pause button now expected to come to the market.
Claire believes the surcharge could cause some ‘bunching’ around the £2m and £5m price points. “People naturally gravitate towards price boundaries, and these figures will become psychological signposts in negotiations,” she explains. “This won’t suppress demand - it will simply influence how offers are constructed, with some choosing to sit just below and others moving decisively beyond them.”
Overall, the surcharge is expected to have a modest impact on the higher end of the market. In Claire’s view, it's likely to be absorbed into the wider running costs of a home, rather than have a major bearing on purchasing decisions.
She adds: “Compared to other global destinations the surcharge feels manageable – in America’s Palm Beach, for example, annual property charges can run into the millions.”
Property income tax raised
Reeves dealt another blow to landlords by unveiling a 2% increase in tax charged on property income. From April 2027, the basic, higher and additional rates of property income tax will stand at 22%, 42% and 47% respectively.
It is set to hit landlords who own rental homes in their personal name rather than through a company structure.
On the one hand, the deferral of the tax hike until 2027 means there’s no immediate financial shock in store for landlords.
But when it does come, it is likely to add more pressure on landlords already feeling the heat from higher mortgage rates, as well as recent regulatory and tax changes. Furthermore, the Renters’ Rights Act is set to kick in next year and is dominating conversation.
The tax increase may well see landlords pass the additional cost onto tenants. Others may exit the sector completely which in turn could reduce the supply of rental homes and drive rents up.
Anna Ambrose, National Head of Lettings, explains: “Rents are already expected to rise once the Act comes into force, thanks to higher administrative costs and landlords’ inability to accept offers over their asking price. This, combined with increases once this new tax comes into play, will only push rents higher, which is when affordability becomes a critical issue.
She adds: “The result is a market where landlords face more constraints and tenants face higher costs - not because of a single tax change, but because of the cumulative weight of policy reforms reshaping the rental landscape.”
Salary-sacrifice pension contributions capped
Reeves also revealed plans to cap the tax-free amount that employees can channel from their salary into their pension pot through salary sacrifice schemes.
It means that from April 2029, salary-sacrificed pension contributions above £2,000 per year will be subject to employer and employee National Insurance Contributions (NICs), just like other employee pension contributions.
But contributions through salary sacrifice will remain exempt from income tax (subject to the usual limits), the government added.
It marks a major departure from existing rules, which allow employees to put up to £60,000 of income per year into their pension through salary sacrifice arrangements.
Matt believes the move, once it comes into effect, could make a greater difference to buyers’ affordability than the high value council tax surcharge. It is higher earners who are likely to be particularly hit by the £2,000 salary sacrifice cap, as Claire explains: “For those with an income over £100,000, this policy reduces their ability to stay below the threshold, and will take a slice from their tax-free allowance, heavily impacting their take-home.”
With the Budget, and its rumour mill, finally behind us for another year, many buyers and sellers can move ahead with renewed certainty and confidence in their plans. If you’re considering buying or selling, our team is here to help.