The FT has reported that Rachel Reeves is planning a “Budget tax raid on the owners of expensive homes”, expected to raise around £4bn. But less than a 20% of that revenue comes from homes in the top council tax band, while roughly 80% comes from the much larger group of homes in the second-highest band.
We’ve built an online calculator where you can test different council tax changes, so you can see how small changes affect total revenue – and what they mean for individual taxpayers.
This is an update of our previous article, which looked only at changes to the top band.
How much is raised? And from whom?
Council tax is based on 1991 property values, divided into eight bands from A to H. Band H is the highest – roughly homes now worth over £1.5 million – and Band G the next, typically £750k – £1.5 million.1
This calculator lets you experiment applying different rates to Band G and Band H (you can view it full screen here):
Note that all figures here are for England. Scottish and Welsh council tax are devolved, and so the bands are slightly different. If applied across the whole of the UK, expect overall revenues to be 5-10% higher than those shown in the calculator.
What the calculator shows about the proposal in the FT
The simplest approach is the one the FT says the Government is considering – doubling council tax for Band G and Band H.2 You can model this in our calculator by setting the Band G and Band H multipliers to 2.0:
As the FT says, doubling both bands would raise about £4 billion – but more than three-quarters of that would come from Band G households. In practice, that means families in £750k to £1.5m homes would see their council tax double – an average rise of around £4,000.
The reason is simple: there are roughly eight times as many homes in Band G as in Band H.3
Band H represents the UK’s 0.6% most valuable homes. Band G represents the next 3.5% most valuable4 – so we should expect in many cases people living in Band G homes earn £100k+. For those just in this bracket, that means £67k after tax (more if it’s a dual income household). A £4k tax increase is significant for them.
Council tax liability falls on occupiers – whether homeowners or tenants. In the long term, landlords rather than tenants bear the cost of council tax (because it reduces rents) but in the short-to-medium term all the cost falls on tenants.
Can we achieve the same result in a fairer way?
It seems intuitive that we could raise more money by leaving Band G alone, and instead adding new bands at the top.
You can test this in the calculator by clicking “split band H into new bands”. This creates three new above band H (you can change the values for each band using the slider).
You’ll see you have to apply an unrealistically high multiplier to these bands (increasing council tax bills five to ten times) to even approach the revenues achieved by a simple doubling of Band G and Band H council tax:
We can’t realistically expect people in £1.5m homes to pay a £25k council tax bill. This is not a sensible proposal.
What if we try a mansion tax?
We can achieve a fairer result if, instead of a multiplier, we apply a “mansion tax” to all the properties in Band H – i.e. a % of property value within the bands. That has a much reduced impact in those at the bottom of the band (say £1.5m to £3m properties) and a much higher impact at the top end.
You can see the impact of this in the calculator by clicking the “New Band H % tax” button. This then applies the set percentage to all property value within that band (on top of existing council tax).5
However a percentage tax fails to raise as much as a simple doubling of Band G and Band H council tax unless we apply rates approaching and exceeding 2%:
Rates this high would in our view be unwise. They would be capitalised into property values (i.e. because people pay less for property that carries a liability). We estimate this effect would cause a 20%+ one-off fall in high end property values. This would have two consequences:
- First, it would reduce SDLT revenues. This will be a large effect because of the disproportionate SDLT revenue from high value property. We estimate SDLT revenue could fall by around £2bn/year.
- Second, it would be unfair to the current owners, operating in a similar way to a one-off property wealth tax.
There’s also a practical problem: creating a valuation system for applying a percentage tax to the c150,000 properties over £1.5m would require considerable resources (and take time to create). The council tax banding system was designed to avoid such difficulties.
So it’s easy to see why the FT says the Government is more drawn towards a simple doubling of rates.
The fairness problem
Our view is that it is absolutely fair and right to create new council tax bands at the top end and apply higher rates to them (provided we don’t set the rates so high that we see very significant declines in property value).
It does not, however, seem fair to greatly increase council tax for people in Band G. People living in Band G properties will often be comfortably off, but are certainly not the “super-wealthy”. In many cases they will have experienced significant tax increases over the previous ten years. It seems particularly unfair if any doubling will be cumulative on the second home premium, which doubles (and, in Wales, triples) the cost of council tax for people with a second home. A 600% premium would be unjust, and the impact on house prices would be so severe as to almost amount to confiscation.6
Why is it that most of the tax increases of the last ten years have been on reasonably high earners and not on the super-rich? The obvious answer is the correct one: it’s much easier to raise large amount of money from them. There is no way to raise £4bn from the super-rich that’s anything like as easy as doubling council tax on moderately high value properties.
There are, however, relatively simple tax reforms that would raise significant sums from the very wealthy. For example: reforming capital gains tax, or making the previously-announced inheritance tax changes more effective. Or – even better – a wholesale reform of land taxation.
Methodology
We set out the methodology and limitations for our council tax calculator in our original article. The underlying sources are Department for Levelling Up, Housing and Communities data for most council tax statistics and Local Government Association data for the 2025/26 figure for each local authority.
The original calculator only applied to band H. The updated code, covering band G and band H, is available on our GitHub.
Photo of FT headline (c) The Financial Times Ltd, and reproduced here for purposes of criticism and review.
Thanks to C for assistance with the modelling.
Footnotes
The figures in this paragraph, and used in the calculator, are what you get when applying average house price inflation to the 1991 figures. Because they are an average, they will be wrong in many local authorities – and in London and the Southeast the bands are often considerably higher. ↩︎
And then presumably adjusting the local government funding formula so that the benefit goes to central Government. ↩︎
London and the South East have most of the Band H stock. In many other regions, almost no homes were worth £320k in 1991. So, today, there are entire local authorities with zero Band H homes. By contrast, Band G exists everywhere – it’s the top “normal” band in most of the country. ↩︎
In other words, a 1% rate set for a band between £1.5m and £3m will apply a 1% tax to all the value of a property that falls within £1.5m to £3m. A £1.5m property would pay nothing. A £2m property would pay £5k. A £3m property would pay £15k. ↩︎
There are people who choose to have two modest homes rather than one more expensive home – there is no rational reason for them to pay six times as much council tax. Any such dramatic one-off increase falls on the current owners (i.e. because there is a sudden drop in value). It impacts developers with current ongoing projects (as their expected price will suddenly fall). It deters developers from future projects (because of the possibility this will recur). The argument that the second home premium enables local people to buy is not well supported; in many cases the homes in question will still be out of reach for locals. ↩︎
21 responses to “Council tax on ‘expensive homes’ – but most of the money comes from the not-so-rich”
I do like the Sam Bowman idea of letting house owners assign their own values to their land/property and having a LVT according to the values assigned. If a homeowner lowballs, then the local authority can buy the house at the lowball price they reckon it’s worth. Realistically, most will want to avoid the compulsory purchase, but the net result is a property taxation system run broadly with consent. Many exemptions and discounts would have to go of course, we can’t be subsidising students, single occupiers and probate beneficiaries . . .
What about the fact that properties on the same street will be either G or H with a fairly arbitrary rationale? I am H but there are bigger houses that are G. This is because an extension was added nearly 20 years ago and it got upped to H on resale. There are many houses on my street still valued at G that are now worth well in excess of 1.5 million and it would seem most unfair if they pay nothing extra but I get stuck with a 20K bill!!!
Sorry ! typo correction in what I wrote of course but to be clear : as the sentence not being completed into the positive as meant :
… Younger folk can have their widely held assumption that State Pension will not be theirs as it has been for others to date,- although inputting NI now-, have their fears allayed at this time in new ways as to how it can be funded and secured (??) ,… as much as such fears can be. (-??). ?? This might be a barmy thought , but maybe the gist of it might be helpful somehow.? Thank you for your patience .
Yes dear Dan. As widely surely we are agreeing Ms Reeves and her Whitehall and backroom bunch team , we are being affected by repeating doing things by this Chancellor and her office which show school kid level of application of What will happen if… x y and z ? And in terms of political response and working out decisions too. A frightening lack of skill and no turning to such as your clever self and others the same who are left to simply warn her…” No pardon me dear Ms Reeves and those behind you,this is NOT going to work well or get the desired results, how about this being much better dear Ms Reeves ???” . I hope any new Administration after her will turn to you and others to share the wise ways that are held by folk across Party boundaries that they can work just very well , one hopes, and get the desired results widely everyone would be quite happy content about.
Can I add in this context “being quite happy about ” dear Dan, that the ideas about how much State Pension is costing this country (but we are very well down the league in fact in that one all the same) but that to bring it to all that is in fact a Benefit. I find this very alarming and really believe that all countries must respect those who can’t count on gaining labouring income past a wise calculated age based on research into such. The idea that any country does not respect and think of it’s elders and older ones and ‘that it’s all their fault and now it’s our turn we youngies, so they can be drawn towards or into poverty, both a societally alarming sense coming into the talk of young set against old and also that the many many who have , and I would think a Court ruling might well find even if folk wish to challenge the way it is, that it is a contract by the way it is led to be made out to citizens and workers . For older folk to have significant reduction in State Pension in any way is much like the goal posts being changed for a time of life one can then do little or nothing of hard work or the like to respond to such , as growing weaker and ‘ vulnerable ‘to being just walked over and unable to find strength to respond.
I do most strongly feel that there needs to be ways of making ‘sure’ the State Pension is there as it is for now and years years years hence so that folk starting out in work can have these mass fears about it is something they will not have and it’s all very very unfair.
AGAIN something you as others with the good talent of sharply thinking and caring real brains , Ms Reeves and Govt should be looking to you and others your peers with you,… now!!… as she has had now 15 months in which she shows she has not been !? !!) and others with you in consensus as to working out new ways things can, as a sum of taxing policies, truly work that markedly better way and which any right of centre future Govt will not be unhappy about going with the general shift of such . ?? many thanks for all you labour at… Very cheering and good hope in such I feel dear Dan . And your seeking to be fair in your honest and appreciative knowledge relating to MPs of every Party and ilk. Avoiding Party politics etc. In matters where one can . Many thanks every best ! David . David Moore.
When are we going to replace Council Tax with a local income tax, surely that is the fairest way and HMRC have the income base info.?
why? We under-tax expensive property. That would just exacerbate the situation.
We are fortunate that we could afford a doubling of our council tax and I think it seems a reasonable way to raise money. The government certainly needs to increase taxes somewhere but our house is band D even though it would probably sell for about £1m now so we probably won’t be affected.
The longer we go without revaluation the more urgent it gets from a fairness perspective.
You hit the nail right on the head as you presumably only feel it’s fair because you can afford it but the council band of someone’s property isn’t a fair proxy for someone’s wealth, or wealth net of tax or income. Also how can it be faiir when it’s applied only to band G and H – just as you say, you are in band D well able to afford it perhaps with millions in the bank, but someone in band G could be struggling upto their eyeball in mortgage debt and not able to afford another £5k- and because of that buyers will capitalise the future extra cost into the price the buyer is willing to pay so the poor band G owner pays twice and is paying at a level very similar to the billionaire in a band G property sitting on 30 acres etc. I can only say your idea of fair isn’t mine! If you want to land a bill on someone because you think they have high income or high net asset, the only fair thing to do is make that bill actually proportionate to that income/ net wealth. This prosed tax is right out of Stone Age – it is the equine of the Hearth Tax or Window Tax, if that is the road we are going down why not an annual Rolex or Ferrari tax.
Some of the new build three-bedroom social housing flats in Westminster are placed in Band G. Attempting to bodge on extra charges on to the council tax really just makes it obvious that the entire system is poorly designed.
Band G goes quite a bit lower than £750k in my (Northern) neck of the woods, G is a very wide band (wider than any of the bands below it). Owning a G band property is not a proxy for “wealth”, or “net wealth” or “income”, plenty of such occupiers will be struggling, on fixed incomes, high mortgages, may be uncertain income, and often far from being awash with spare cash. Band Gs, especially in the North often sit next door to or in close proximity to E and F properties and there is often not that much quality difference between those bands – and this is a slow moving part of the market anyway, therefore future buyers will capitalise the CT increase by way of lower offers, NPV modelling would suggest reductions in vlaue possibly in the order of £100-£150k. So G owners especially in the bottom half of G band will pay twice first when they get the bill and second when they sell. For some this bill will be the straw that breaks the camels back so you could easily see a surge in distressed buyers which will exacerbate market falls. “Notch-up” taxes like this are what gave the Window Tax a bad name. Slamming G owners with fat 100% uplifts is profoundly unfair! For H it matters less , they tend to be pretty palatial and if you want that quality of property you got to buy a H so buyers will have less leverage, also when your price is >£1m and possibly a lot greater, £10k annual CT is less of an issue for prospective buyers. This G band tax puts convenience too far ahead of fairness.
Also has anyone noticed with this budget its not the broadest shoulders bearing the greatest burden, its those shoulders bearing the ENTIRE burden, and in multiple different (random) ways which makes the outcome egregious. How is that actually fair and equitable, we are all supposed to be in it, arent we?
If Reeves is insistent on funding this 100% from wealth do it fairly with a proportionate wealth tax rather than putting it all on those who happen to trigger some CGT, CT,IHT liability etc.
Also is this anyway a sound method to fund a recurring expenditure stream surely at some point the generational wealth she is targeting will get exhausted, or she will have disincentivized the middle classes or hammered their asset values so much that the golden goose which is in her current sights, will be shot dead and stop laying, or may be she doesn’t care as she wont be around to deal with that problem (bit like the Tory approach to fiscal policy)
Possibly doubling band G & increasing H by 1.5x as an interim (revenue raising) measure before rebanding (more bands at top end) or an LVT introduced is reasonable. May also need to be done in conjunction with further redistribution of block grants from council tax rich to poor areas.
I’ve got no problem with taxing those with multiple homes until the pips squeak. We are in a housing crisis after all.
No ad hoc tax reform is going to be perfect – on the face of it, given that RR needs the money pronto, raising council tax across the top two bands seems the fairest and most expedient way to proceed (a proprotional tax based on value would be better but timing and valuation problems militate?).
Fair point about possible equity and political issues connected to impact on ‘strivers’ already facing high marginal rates when reaching the c100k threshold. Palliatives could eat into the posited savings, but we return to present imperfect.
Comprehensive tax reform is easier when household incomes and public finances are healthy.
Dan like all of us needs a comfort blanket, and land value taxation- while desirable- provides it.
His sensible proxy LVT based on council tax and business rate reform like similar Mirelees reforms is predicated on a neutral revenue assumption but RR needs additional money now.A lot of potential political pian for no dough – a non starter.
Of course that assumption can be lifted – but then who would pay at what political risk?
Back to present imperfect and keeping it as simple as possible while making short term implementable reform consistent with longer term systemic strategic change.
Those Band G occupants in London are not all well off. My next door neighbour is an elderly widow, a former NHS worker, who bought the property as a council house tenant decades ago. Such cases will be multiplied across London by the thousand – the politics of this would be just dreadful
Another factor is that there are Band F homes that have been substantially extended (in some cases to exceed the size of neighbouring Band G). At the moment they pay a slightly lower Council Tax but if Band G doubling goes ahead they will pay less than half the tax for a larger house (until the house is sold). Hardly seems fair.
This penalisation of bands G and H – by DOUBLING the tax ( when did that ever happen before?) is grossly unfair to people in the south east with newer build houses, all well over 320K. As pensioners, an extra £5000 is a massive slice of income to find.
why unfair on new build homes? They are valued at 1991 prices to determine the applicable band
Council taxes are based on hopelessly outdated valuations. Mine is based on a house that no longer exists – I demolished it and rebuilt one twice the size.
That is very true its not fair to pick on 1 million house owners with a a very fat annual property tax and not revalue- those 1991 valuations become less and less reliable as an indication of current value and the housing market and distribution of value isnt static. Property types fall, areas etc fall in and out of favour over time, and that is ignoring improvements which don’t get valued or don’t get valued correctly. Just to give one example this tax itself will devalue G band property in a ways that was never reflected in the 1991 distribution of housing market value!
A good article. Some obvious issues with doubling council tax on band G, e.g. a home worth 750k pays the same tax in cash terms as one worth £1.5 million, and twice as much in percentage terms.
Also Wandsworth charges £1k/year for band H. Even if you doubled that amount, they’d be paying far less council tax than many property owners in even band D. So doubling doesn’t really work.
JFC. This along with having to remortgage next year (1.25 -> 5%?) we’ll have to look at selling.
As will so many others causing a horrible loss of value in band G- so forget broadest shoulders – it’s YOUR shoulders thst do the carrying whilst the billionaire in band H barely notices an extra £5k on his mansions band H property.