Owners of expensive homes could defer paying Labour’s mansion tax until after they die, if they are deemed to be on a low income.
The mansion tax was announced in Rachel Reeves’ Budget in November 2025. It will see owners of homes worth £2million or more subject to a High Value Council Tax Surcharge from 2028.
This will range from £2,500 per year to £7,500 per year, depending on the value of their home.
The Government has now published a consultation to seek views on how the controversial proposals could work.
It says it will make a deferral scheme available, meaning some eligible homeowners won’t have to pay until they sell the home.
When the policy was announced, pensioners living in high-value homes were one group concerned they would not be able to afford the tax, as they were no longer earning.
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If adopted, the deferral proposals would mean they could pay the taxman through the sale of the home after they die.
To be able to defer, they will need to prove that either their income or savings are below a certain level.
The Government proposes that deferral be available to households with an annual household income of £35,000 or less, or savings of £16,000 or less.
It said this was in line with the income cut-off used to decide whether someone receives other benefits, such as Winter Fuel Payments.
A couple on the full, new state pension alone would currently get just over £25,000 per year, bringing them below the threshold.
However, interest will be charged on the payments that are deferred.
The consultation suggests several potential rates for this, including the Bank of England base rate (currently 3.75 per cent) and the rate used in deferred payment agreements for adult social care currently 4.75 per cent.
The Government will conduct a ‘targeted valuation exercise’ to identify properties in scope of the tax. The first will take place before it comes in in 2028, and the next in 2033.
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The Government says fewer than 1 per cent of properties will be eligible for the charge, though this is likely to increase over time as house prices go up.
The owners of homes worth between £2million and £2.5million will pay £2,500 a year.
This will increase to £3,500 a year for homes worth £2.5million to £3.5million, £5,000 a year for those worth £3.5million to £5million, and £7,500 for homes worth over £5 million.
Charges will rise in line with Consumer Prices Index inflation.
Homeowners wishing to defer will have to provide evidence such as payslips or statements of earnings, or bank and pension statements, to their local authority.
Sarah Coles, of investment platform AJ Bell, says that while the surcharge ‘won’t break the bank for those on high incomes living in expensive properties,’ the criteria for those who do not fit into that bracket and want to defer are ‘remarkably tight.’
Coles added: ‘Household income might have to be no more than £35,000 or total household savings up to a limit of £16,000 in order to qualify.
‘Many people over both these thresholds could struggle to pay thousands of pounds each year in extra tax.’
She added that the interest charged would add a further burden, especially if someone deferred for many years.
‘A relatively punchy interest rate can make a big difference when interest is rolled up,’ Coles said.
