One of the key announcements in last year’s Autumn Budget was the introduction of the High Value Council Tax Surcharge, commonly referred to as the “mansion tax.”
This new charge is set to apply to owners of properties in England valued at £2 million or more. A similar measure was also announced in the Scottish Budget for homes valued at £1 million and above.
Although the proposals may change before they are implemented, it’s a good idea to start considering their potential impact now.
Read on to learn how these proposed “mansion taxes” are expected to work and what steps you can take to prepare for them.
Both England and Scotland have new property taxes set to come into effect from 2028
While England and Scotland are set to introduce new “mansion taxes” in 2028, properties in other parts of the UK will not be affected. The two countries, however, are taking different approaches.
In England, the new surcharge will be added on top of the existing Council Tax, and will be based on four value bands:
- £2,500 for properties valued between £2 million and £2.5 million
- £3,500 for properties valued between £2.5 million and £3.5 million
- £5,000 for properties valued between £3.5 million and £5 million
- £7,500 for properties valued over £5 million
Property values will be assessed by the government’s Valuation Office Agency (VOA) throughout 2026.
In Scotland, rather than introducing a separate surcharge, the government plans to adjust its existing Council Tax bands to target higher-value homes. This means more expensive homes will pay a higher Council Tax rather than a separate charge.
While the rates haven’t been confirmed yet, the proposed new bands will be:
- Band I: £1 million to £2 million
- Band J: Over £2 million
Both the Scottish and English taxes are set to come into effect from April 2028.
There may be exemptions, but certain groups are likely to be hit harder
The UK government plans to hold a consultation on possible reliefs and exemptions for the new charge; for example, for people who must live in high-value properties because of their job. However, for most owners of high-value homes, the surcharge is still expected to apply.
While the new charge will likely affect most owners of expensive properties, pensioners are expected to feel the impact the most. This is because many retirees have fixed or limited incomes and may be asset-rich but cash-poor, making it harder to cover an additional annual cost.
Some homeowners may consider downsizing to avoid the surcharge. However, Stamp Duty costs can make moving expensive, and many people are reluctant to leave their home simply to avoid a new tax.
There may also be options to defer the payment until the property is sold. However, this hasn’t been confirmed, and deferral could mean additional interest accrues, which might reduce the value of the estate.
4 steps to help you prepare for the new charge
If you’re likely to be affected by the new tax, it’s important to start planning early so you can build it into your financial strategy.
The following four steps can help you prepare.
1. Estimate your potential charge
While the final property value will be decided by government valuations, getting an early estimate can be helpful. This allows you to factor any potential charge into your financial planning rather than being caught off guard.
Although you can wait for the charge to be confirmed by the government, you can also use online valuation tools for a rough estimate or get a professional valuer for a more accurate figure. Knowing your potential charge early gives you more time to prepare for it.
If you look to be on the cusp of one of the thresholds, it may be a good idea to assume you’ll be in the higher one, so you have more flexibility in your plans once the charge is confirmed.
2. Adjust your budget early
Once you have a sense of your potential annual charge, make sure it’s included in your budget.
Incorporating the surcharge may mean adjusting other spending or savings, and a financial planner can help determine which adjustments make the most sense for your circumstances.
3. Understand the impact on your goals
The surcharge could affect your long-term objectives, including retirement and estate planning.
For example, paying the proposed top rate for the English surcharge of £7,500 a year could add up to a significant sum. Over 10 years, this would total £75,000 and over 20 years it would be £150,000. This is before any adjustments are made for inflation.
A financial planner can use cash flow modelling to show how the surcharge might impact your income, savings, and legacy. This helps you determine whether your current plans remain realistic and identify where you may need to make adjustments to balance the cost with your goals.
4. Explore downsizing options
If the surcharge would significantly affect your lifestyle, downsizing may be an option. However, this is a major decision with potential costs, such as Stamp Duty and the emotional impact of leaving a long-standing home.
So, it’s important to speak to a financial planner first to explore all possible options before taking any action.
To speak to a financial planner, get in touch.
Email us at hello@vwmwealth.com or call us on 0141 229 4004.
Please note
This article is for general information only and does not constitute advice. The information is aimed at individuals only.
All information is correct at the time of writing and is subject to change in the future.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The Financial Conduct Authority does not regulate estate planning.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
