Leasehold homeowners could face additional costs under recently announced council tax proposals. The new surcharge, aimed at properties valued over £2 million, may include leasehold homes whose actual market value falls below the threshold when current lease terms are considered.
This results from recent guidance that standardises property valuations for council tax, potentially overlooking shorter lease terms that reduce a property’s true value.
Concerns have been raised that this could bring more leaseholders into scope for the annual surcharge, set to begin in 2028, with significant financial implications for affected households.
Overview of the high-value council tax surcharge
The Chancellor has introduced a high-value council tax surcharge for properties deemed to be worth more than £2 million. The policy, outlined during the Autumn Statement, will apply from 2028 and is projected to generate additional revenue for central government.
Four price bands will determine the annual charge, starting at £2,500 for homes valued at £2 million and rising to £7,500 for those priced at £5 million or above. Local authorities will collect the surcharge as part of regular council tax bills.
The primary goal, according to government statements, is to address disparities where high-value properties currently pay proportionally less in council tax compared to average homes.
How valuation will affect leasehold properties
Concerns have surfaced that the valuation method for the new surcharge may disadvantage leasehold homeowners. Official guidance from the Valuation Office Agency (VOA) assumes all leasehold flats have a notional 99-year lease at a nominal rent, regardless of the actual lease term remaining.
In practice, leaseholds with less than 80 years remaining are significantly less valuable than similar properties with longer leases. The government has confirmed that valuations for the surcharge will not reflect the genuine reduction in market value caused by shorter lease terms.
Instead, the notional valuation could result in some properties being assessed at over £2 million, even if their true sale price falls below this level due to a shorter lease.
Impact on leaseholders and property owners
Data from the Leasehold and Freehold Reform Act impact assessment indicate that 11 percent of flats in England and Wales have a lease shorter than 80 years, with a significant concentration in London. Properties with relatively short leases can see market values reduced by 10 to over 30 percent.
For leaseholders, especially in areas with high property prices, the cost of extending a lease can be considerable and may coincide with facing a new surcharge. Campaign groups have said that leaseholders are disproportionately affected.
Harry Scoffin, founder of Free Leaseholders, argued that “leaseholders keep being penalised”, highlighting concerns that the new policy may result in excessive taxation based on notional rather than tangible property values.
Government and political responses
Political debate has intensified following the release of policy details. During a recent parliamentary session, Conservative MP David Simmonds queried whether valuations would account for current lease lengths.
Dan Tomlinson, the Exchequer Secretary to the Treasury, responded by confirming the VOA “values all properties for council tax on the same basis and in line with legislation”.
A Treasury spokesperson maintained that “only homes valued above the £2m threshold will be subject to the high-value council tax surcharge”, defending the changes on grounds of fairness between very high-value properties and typical family homes.
Financial and legal background
Under current law, lease properties with shorter remaining terms are subject to reductions in market value. For example, legal experts estimate a lease between 70 and 80 years may diminish a property’s price by up to 20 percent, with even steeper decreases for shorter terms.
Despite this, the VOA’s use of standardised assumptions means these specificities are set aside for council tax purposes.
Shadow Housing Secretary James Cleverly claimed the new rules would “assign inflated values” to leasehold properties and risk “landing their owners with unexpected bills”, according to reported remarks.
Final Summary
The forthcoming high-value council tax surcharge has raised concerns among leaseholders and property owners, especially those with properties whose market values are reduced by shorter lease terms.
The standardised approach to valuation may draw more households into the regime than initially anticipated. Critics argue that the policy could result in leaseholders with less valuable homes paying a surcharge intended for wealthier property owners.
As the implementation date approaches, continued scrutiny is likely, particularly regarding the treatment of leaseholds and the overall fairness of the measure.
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