Labour’s £2m+ Council Tax Surcharge: Impact for succession and tax planning

There has been much discussion about the new council tax surcharge on homes worth over £2 million, which was announced in the Autumn Budget last month. In the run-up to the Budget, speculation focused on a wider “mansion tax”, including potential limits on principal private residence relief from capital gains tax for homes worth over £1.5 million. This all fed into increased interest in clients gifting property down to the next generation ahead of the Budget, with many clients accelerating plans to complete such gifts prior to 26 November 2025. Compared with some of the speculation, the new council tax surcharge is relatively modest, but we nevertheless expect to see an impact.

Impact on homeowners

Our excellent Family and Property experts have already provided commentary on the potential impact of the new council tax surcharge. At a very high level, for high-net-worth and ultra-high-net-worth individuals with sufficient cash resources to absorb the additional costs, the surcharge is unlikely to have a significant impact.

The bigger impact will be felt by homeowners who are asset-rich but with limited cash resources. This includes those who bought when prices were lower and have remained in their homes, owners in higher‑value areas (such as London) where ‘typical’ properties commonly exceed the £2 million threshold, and owners with significant mortgages. These individuals may find the additional annual cost challenging alongside other rising expenses. We will wait to see whether the outcome of the consultation expected in 2026 will include any mitigating measures for such cases.

Implications for succession planning

On its proposed terms, the surcharge is unlikely to trigger a significant shift in succession and tax planning strategies. The most likely response is the acceleration of existing plans to gift part or all of a property to the next generation, to ensure that these gifts are complete before April 2028. Expert advice remains essential when considering gifts of property to ensure that the various tax implications and practicalities of such gifts are properly navigated. More on this can be found in our recent article on “Making Gifts of Property: Key Points to Consider”.

Gifts will of course not get round the surcharge but will simply shift it to the next generation. Homeowners will therefore need to consider cash flow. 

Similarly, where individuals are considering a gift of property for inheritance tax (IHT) planning purposes (not for any reason connected with the surcharge), they will need to consider the ability of the recipient to pay the surcharge, or an additional gift of cash to cover that. Where regular cash gifts are made for this purpose, consideration will need to be given to whether they are regular gifts for IHT purposes and if so, whether some relief (for example, gifts out of surplus income) may apply. Such gifts should be appropriately documented, and advice should be taken.

Implications for existing trusts

Trusts that hold high-value residential property may need particular consideration ahead of April 2028. It is common for a trust to hold a property which is occupied by a beneficiary, with routine outgoings (such as council tax and utilities) paid for by the occupier. Such trusts often have limited liquidity and can operate in that way for years without issue.

The new council tax surcharge may cause issues for that existing arrangement if, as currently proposed, the liability for the tax is on the owner (i.e. the trustees) rather than the occupier (i.e. the beneficiary). Trustees may face an annual liability, with no liquid assets to fund it. Where a beneficiary in occupation funds the surcharge, that payment may constitute a loan to the trustees, and should be properly documented. Failure to consider and document a loan arrangement such as this could potentially trigger some unexpected tax complications, so advice is key.

Summary 

The key takeaway seems to be that homeowners (both individuals and trustees) who may fall within the surcharge regime will need to consider the funding of the surcharge on an ongoing basis. Recipients of property will need to be aware that they will take on that liability and will need to find the funds to meet the new council tax surcharge.