Living on lower fixed incomes, some older homeowners of multimillion-pound properties will struggle to find the additional £2,500 annual charge announced by Rachel Reeves in last month’s Budget.
Mortgage and later life advisers said they’ve already had conversations with homeowners concerned over how they’ll afford to foot the bill.
Gerard Boon, managing director of Boon Brokers, said: “Even though most high-net-worth individuals that I have spoken with can quite comfortably afford the tax payments, there are many who can’t. These clients are usually older and would be considered vulnerable, according to the FCA’s definition.
“Many of these homeowners are asset-rich, usually due to an inheritance, but cash-poor due to a lack of income and are therefore unable to meet the new tax obligations. I expect that many of these vulnerable homeowners may be forced to sell their property, seek financial help from friends or family, or use capital-raising schemes like equity release to raise the money.
“Therefore, for these individuals, the mansion tax is likely to cause a great deal of stress and discomfort in their lives.”
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Jane King, mortgage and equity release adviser at Ash-Ridge, added: “As an equity release adviser, I see many older people with properties in this price bracket who have limited income. They were looking at taking out equity release, but having spoken with them, it was agreed that maybe downsizing would be a better route so that they can avoid this cost.”
A tax on ‘average’ houses
The mansion tax will take the form of an annual high-value council tax surcharge that will take effect from 2028. It will start at £2,500 for properties valued between £2m and £2.5m, rising to £7,500 for homes worth £5m or more. According to the government, fewer than 1% of properties in England are expected to be above the £2m threshold.
These valuations will be based on the Valuation Office’s evaluation of 2026 prices and will be increased in line with Consumer Prices Index (CPI) inflation each year from 2029-30.
High-value council tax surcharge charging structure:
| Threshold | Rate |
|---|---|
| £2m-2.5m | £2,500 |
| £2.5m-3.5m | £3,500 |
| £3.5m-5m | £5,000 |
| £5m-plus | £7,500 |
Chris Sykes, director and property finance specialist at MSP Financial Solutions, said: “Certain people who have owned property for a long, long time in areas of London argue that they live in an average house for the area and can’t afford this extra cost.
“These clients are being left mainly with two options – downsize and move area, or take out debt on their property. I’m sure we’ll see an increase in equity release for older borrowers with £2m-plus property.”
There could be a lifeline on offer for some homeowners, however. The government has pledged to ensure a support scheme is in place for those who may struggle to pay the charge and will consult on the details.
Mounting pressure
But it’s not just pensioners who face affordability concerns, according to Adrian Anderson, director of Anderson Harris. He said the annual charge will have to be factored into a mortgage lender’s affordability assessment, and this ongoing cost could make it “slightly harder” for some buyers of properties valued at just above the £2m threshold.
“This could be a particular concern [if] their income is tight or if they rely on property equity rather than cash flow,” he added.
However, Anderson said the mansion tax itself won’t act as a major deterrent against buying properties worth more than £2m.
He said: “When financing high-value properties, my clients say stamp duty is the main barrier to entry. And, for the last three years, all homeowners have experienced much higher interest rates.
“Meanwhile, high earners who send their children to private schools must now pay VAT on school fees, all of which has led to an ongoing affordability issue for wealthy individuals, even for those with high incomes when trying to trade up to high-value homes.
“The mansion tax will be another disappointing outgoing to factor in.”
Returning demand
The overall feeling among high-net-worth (HNW) mortgage advisers and their clients is one of slight relief.
Phil Leivesley, director of mortgages at LDN Finance, said: “As it turns out, the problems the Budget caused the market were more in the long run-up than in the contents of the Budget itself. Enquiries have rebounded after the Budget and we’re busy again.
“The feeling amongst prospective borrowers appears to be that they were expecting the worst, and the reality isn’t nearly as scary as what commentators were predicting, or the Chancellor herself warned us about.
“And although it’s early days, the surcharge doesn’t appear to have killed demand for £2m-plus properties.”
A survey carried out by Boon Brokers shortly after the mansion tax announcement revealed that 53% of homeowners thought the additional tax would not deter wealthy individuals from investing in UK property.
Anderson said clients who arranged mortgages with him pre-Budget have now proceeded with those purchases. Meanwhile, his HNW network reported an “immediate spike in interest from buyers and sellers, with some very high-value property sales exchanged after the Budget”.
But another tax on the wealthy has left the community reeling, said Boon.
He noted: “Our HNW clients naturally feel targeted and many are withdrawing investment in the property sector.
“The tax sum payable itself does not seem to be their main issue – more the targeted approach from the government on wealthy individuals, which makes them feel unfairly vilified.
“It may change their buying and investment behaviour in the UK economy generally due to this feeling, which will be difficult for the government to measure until the damage to the country has already been done.”
A public consultation on details relating to the surcharge will be held in early 2026.
