Government urged to clarify who pays new mansion tax on rentals

Government urged to clarify who pays new mansion tax on rentals

Propertymark calls for clarity on liability and valuation as the High Value Council Tax Surcharge is set to affect properties worth £2m or more from April 2028, raising questions for landlords and tenants.

The government is facing calls to clarify who will be liable for the new High Value Council Tax Surcharge (HVCTS), commonly referred to as the mansion tax, when it applies to rental properties in England. Propertymark, the professional body for letting agents, has highlighted significant unresolved issues regarding valuation, enforcement, and liability ahead of the tax’s proposed introduction in April 2028.

The surcharge targets residential properties valued at £2 million or more, with the government estimating that fewer than 1% of homes will be affected. However, Propertymark warns that many practical challenges remain, particularly concerning how valuations will be conducted and who will ultimately bear the cost of the tax in rented properties.

Propertymark’s concerns about valuation and liability

In its official response to the government’s consultation on the HVCTS, Propertymark emphasised that many high-value homes have not been sold for several years, making accurate valuations difficult to achieve using current online tools or market appraisals. The organisation also expressed doubts about whether there will be sufficient qualified valuers available to assess the estimated 165,000 properties potentially affected before the surcharge takes effect.

Propertymark further questioned whether local councils have the necessary resources and funding to administer the new tax effectively. The body’s primary concern is the potential for inconsistent or inaccurate valuations that could lead to disputes and enforcement difficulties.

Another key issue raised is the question of liability in rented properties. Propertymark pointed out that it is unclear whether the resident tenant or the landlord owner should be responsible for paying the surcharge. The organisation recommended allowing landlords the flexibility to decide who pays, reflecting the existing arrangements for council tax liability in rental situations.

Support for deferrals and exemptions, opposition to non-resident surcharge

Propertymark supports the government’s proposal to introduce deferral arrangements for eligible homeowners who may struggle to pay the surcharge upfront. However, it called for a review of the proposed income and savings thresholds to better protect lower-income households living in high-value homes.

The body also backed exemptions and discounts for specialist property types such as purpose-built student accommodation, care homes, and refuges for victims of domestic abuse. These exemptions aim to prevent unintended consequences for vulnerable groups and specific housing sectors.

Conversely, Propertymark rejected the government’s suggestion to impose an additional surcharge on non-UK resident owners. The organisation warned that such a measure could discourage international investment in the UK’s high-value housing market, potentially affecting the supply and value of these properties.

Context of the High Value Council Tax Surcharge

The High Value Council Tax Surcharge is part of the government’s broader strategy to raise revenue from high-value residential properties. It is designed to apply an additional charge on top of the standard council tax for properties valued at £2 million or more. The surcharge aims to target wealthier homeowners, including those who own luxury properties and second homes.

While the government projects that the surcharge will impact a small fraction of the housing market, the practicalities of implementing such a tax on properties that are often complex to value and may be rented out have raised concerns among industry stakeholders. The rental sector is particularly sensitive to changes in tax and regulatory burdens, as these can influence rental pricing, landlord investment decisions, and the overall availability of rental properties.

Implications for landlords and letting agents

For landlords with properties valued at or above the £2 million threshold, the introduction of the HVCTS presents new challenges in terms of tax planning and compliance. The uncertainty over who will be liable for the surcharge in rented properties means landlords need to prepare for potential negotiations with tenants and consider how the surcharge might affect rental agreements.

Letting agents will also need to stay informed about the evolving regulations to advise landlords accurately and manage tenant communications effectively. The anticipated resource constraints around valuation and enforcement suggest that landlords and agents should maintain detailed records of property valuations and council tax arrangements to support any disputes or clarifications.

Given the complexity of the new tax and the concerns raised by Propertymark, landlords should monitor official government guidance closely and seek professional advice where necessary to understand their obligations and options.

Outstanding questions and future developments

The government has yet to provide detailed guidance on how the HVCTS will be administered, particularly regarding valuation methods, enforcement mechanisms, and liability in the private rented sector. Propertymark’s call for a clear and practical framework underscores the need for further consultation and clarification before the surcharge is implemented.

Landlords and agents should watch for updates on the government’s approach to these issues, especially any decisions on whether landlords or tenants will be responsible for payment in rental situations. The availability of deferral schemes, exemptions, and the treatment of non-resident owners remain areas where policy details could evolve.

Until these questions are resolved, landlords managing high-value properties face uncertainty about the financial and administrative impact of the surcharge.

What landlords should consider now

Landlords with properties approaching or exceeding the £2 million valuation should begin reviewing their current council tax arrangements and property valuations. Engaging a qualified valuer early may help establish a baseline for future assessments, although the shortage of valuers noted by Propertymark could affect timing and costs.

It is also advisable for landlords to assess their tenancy agreements to determine how any additional charges might be passed on or absorbed. Clear communication with tenants about potential changes to council tax liability will be important to manage expectations and avoid disputes.

Keeping abreast of government announcements and consulting professional advisers will be essential to prepare for the surcharge’s introduction. Landlords should also consider the impact of any exemptions or deferrals for which they or their tenants might qualify.

Supporting landlords with compliance and management tools

The Landlord Association (TLA) offers membership resources that can assist landlords and letting agents in preparing for new tax obligations such as the High Value Council Tax Surcharge. Through TLA’s compliance support, members can access up-to-date information on regulatory developments and practical guidance on managing property records and documentation.

TLA is currently developing ORBIT, a property management and compliance platform available in BETA testing. ORBIT aims to help landlords organise their portfolios, manage rental documents, and keep evidence of compliance activities in one place. Features under testing include tools for recording property valuations, council tax arrangements, and communications with tenants about tax liabilities.

Exploring TLA membership and ORBIT BETA access can provide landlords with practical support to navigate the complexities of new tax rules and maintain organised, compliant rental operations.

Looking ahead, the government’s response to the consultation and subsequent policy details will be critical for landlords of high-value properties. Staying informed and proactive will be key to managing the financial and administrative impact of the High Value Council Tax Surcharge.

Sources: Landlord Today