Thousands of pensioners across London risk being priced out of the homes they have lived in for decades under the Government’s new council tax surcharge on properties worth more than £2million.
Annual bills of up to £7,500 will leave many asset-rich but cash-poor elderly homeowners unable to afford to stay in their properties, industry experts have warned.
The new levy, which applies to properties valued above £2million, is due to come into force in April 2028 and is expected to place intense financial pressure on long-term London homeowners.
Annual charges of between £2,500 and £7,500 will apply to affected households – a far higher burden in the capital, where soaring prices mean even modest family homes now exceed the threshold.
Critics say the so-called mansion tax will disproportionately hit older residents who are “asset-rich but cash-poor”, leaving them with valuable property but limited income to cover the steep new bills.
Property professionals warn that established London families face impossible choices between abandoning ancestral homes or struggling with unaffordable tax demands.
The policy particularly impacts those who inherited properties or purchased decades ago, before London’s property boom pushed modest family homes into luxury price brackets.
Many affected homeowners possess substantial property wealth but limited monthly income to cover the new charges.
Nick Neale, Director at Emoov said: “London and the South East are being penalised far more than the rest of the country. People who’ve lived in the same home for generations are suddenly looking to sell, often shocked to realise the equity they’re sitting on, despite having little disposable income.”
The levy will interfere with traditional inheritance arrangements
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The property expert observes an emerging trend of families disposing of homes inherited through multiple generations.
He warns the levy will interfere with traditional inheritance arrangements: “Keeping a large family home comes with maintenance, running costs and now considerable tax. Many families may feel they have little choice but to sell even when the intention was to pass the property on.”
Elderly Londoners seeking smaller accommodation face severely limited options in the current market.
“We simply aren’t building enough bungalows or accessible properties. In the 1960s, there was real supply; today, the market offers almost nothing. Homeowners are trapped between rising taxes and nowhere appropriate to go,” Mr Neale states.
Retirement crisis looms as Britons face ‘raiding pension pots’ to pay housing costs | GETTY
The scarcity of suitable downsizing properties creates a housing deadlock across the capital.
Larger family homes remain occupied by owners who cannot afford the new tax burden, yet these residents have no viable alternatives for relocation.
This shortage prevents the natural turnover of housing stock, as elderly homeowners who might otherwise downsize find themselves without appropriate smaller properties to purchase.
The situation leaves many facing financial pressure without realistic solutions for maintaining their London residence.
The property industry has raised concerns about market-wide disruptions from the policy.
Peter Stimson, Director of Mortgages at MPowered Mortgages, warns of perverse incentives: “For the first time ever, thousands of people have a perverse incentive to reduce the value of their homes and avoid trading up.”
He describes the measure as “an indiscriminate tax grab on swathes of London” that could accelerate property price declines in the capital.
Mr Stimson predicts unusual market behaviour, suggesting homeowners near the £2million threshold might attempt to decrease their properties’ appeal to avoid the levy.
The OBR is concerned that such a measure, whilst expected to raise £0.4billion
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“All this disruption for a mere £400m increase in tax revenue seems like a very poor return,” he argues, characterising the policy as “political posturing masquerading as policy.”
Glen Thomas, partner at MHA, comments said: “As a huge shake up of the taxation of homes, the long expected ‘mansion tax’ was announced. There are worries that such a move may depress the residential property market and unfairly disadvantage those who were able to acquire their home many years ago.
“It is envisaged that those who are asset rich may struggle to pay the new annual surcharge which could be as much as £7,500 in respect of homes that are in excess of £5million or more.
“The OBR is concerned that such a measure, whilst expected to raise £0.4billion, will contribute to reduction in the yield from other property taxes including SDLT and CGT as a result of behavioural changes.”