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CASH-POOR pensioners sitting on valuable family homes could be plunged into a debt spiral under Rachel Reeves’ new “mansion tax” plans.
Reeves unveiled the levy in Wednesday’s Budget, targeting homes worth more than £2million.
From April 2028, families in these properties will be slapped with an extra bill ranging from £2,500 to a whopping £7,500 every single year.
The charge will sit on top of usual council tax and will be applied to property owners, rather than tenants.
But the real kicker is for those who are “asset rich but cash poor” — typically retirees who bought their homes decades ago for peanuts, only to see values skyrocket in areas like London and the South East.
To stop grannies being forced to sell up, the government says it will let them “defer” the tax.
That means you don’t pay now — the bill is just added to the value of your house and paid when you die or sell.
However, those who can’t afford to pay the Chancellor’s harsh new levy upfront could face being hit with crippling interest rates of up to 8% if they delay payment, according to The Times.
Expert have warning the scheme could become a “nice little earner” for the Treasury — while leaving elderly Brits facing a massive bill that eats away at their children’s inheritance.
The frightening “debt trap” detail is buried in the small print of the Labour government’s new “high value council tax surcharge”.
Tax experts warn that the taxman rarely does anything for free.
If the Treasury applies its standard late payment terms, struggling homeowners will be charged interest at the Bank of England base rate plus 4%.
Right now, that adds up to a staggering 8% interest charge.
Heather Powell, from accountancy firm Blick Rothenberg, said: “If this deferral rolls on for ten years, that’s going to be really expensive.
“I think if there is an 8% interest, most people won’t want to go down the deferral route because that is very expensive borrowing.”
‘Lovely money-spinner’
Critics fear the government is setting a trap that could drain thousands of pounds from family estates.
Ros Altmann, a former pensions minister, didn’t mince her words.
She said: “If they do use a deferral system, it would be a lovely money-spinner for the Treasury but terrible for those hit by it.
“These are likely to be older people for whom selling would be hard and haven’t got the cash to pay the tax.”
What happens next?
The Treasury has promised a “consultation” at the start of next year to iron out the details.
They claim they want to protect those on low incomes and will put a “support scheme” in place.
But for thousands of families in terraced homes the clock is ticking.
A government spokesperson said they are looking into the deferral process to ensure bills can be paid “in one go when they sell or die.”
The Government estimates that fewer than 1% of UK properties will be subject to the additional tax – but that it will raise more than £400million in 2029-30.
The Treasury was approached for comment.
Sun Analysis
By James Flanders, Chief Consumer Reporter:
This looks less like a “wealth tax” and more like a stealth tax on inheritance.
Telling pensioners they can “pay later” sounds generous until you see the interest rate.
Charging 8% on deferred tax isn’t a helping hand — it’s a loan shark rate from the state.
Many will be questioning if this a fair levy, or a back-door way to seize chunks of family homes when hard-working Brits pass away?
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