In the Autumn Budget, a new ‘mansion tax’ was announced to be introduced from April 2026, and to be collected alongside Council Tax from 2028. Officially known as the High Value Council Tax Surcharge, it will apply to all residential properties valued above £2 million. We explore the potential impact of this new tax on your legacy and retirement planning.
Mansion Tax explained…
The High Value Council Tax Surcharge is an extra annual fee on top of standard Council tax charges. There is a two-year delay on collection alongside Council Tax payments due to the need to update rates, so they reflect the current estimated value of properties. At present, fees are based on when the rates were first set back in 1991. The Valuations Office Agency will be reviewing applicable Council Tax rates in bands F, G and H during 2026.
The mansion tax will be applied to residential properties using a sliding scale:
| Property Value Thresholds | Council Tax Surcharge |
| £2m to £2.5m | £2,500 |
| £2.5m to £3.5m | £3,500 |
| £3.5m to £5m | £5,000 |
| £5m+ | £7,500 |
Who will be affected by the mansion tax?
According to government figures, it’s estimated that 100,000 households will be affected by the mansion tax. Homeowners will be required to pay this new rate (not the occupiers). Therefore, landlords renting high-value properties will also be liable to pay this charge.
As properties in London and the South East generally have the UK’s highest property prices, these regions are expected to be hit the hardest. According to analysis by Hamptons, around 50% of properties in London have a value over £2 million. If you or a family member are planning to leave a high-value property as part of your legacy, it’s important to factor in ongoing costs.
[h2] How will the mansion tax work with legacy planning
When you leave a property directly to your children (including stepchildren, adopted or fostered), your tax-free inheritance tax (IHT) allowance increases from £325,000 to £500,000. Although the mansion tax sits outside of IHT, it’s still an additional, regular cost that could impact your children’s cash flow.
There are ways to help mitigate the amount of IHT paid on an estate. As an example, if you leave 10% of your net estate to charity, this reduces the IHT rate from 40% to 36%. You could also look at gifting within the annual thresholds. For more information, please see our blog Charitable Giving & Legacy Planning: Preserving future wealth.
It’s also worth noting that from April 2027, unused pensions and death benefits are likely to be included within your estate for inheritance tax (IHT). The government estimates that around 213,000 estates will include pension wealth from 2027 to 2028, and around 10,500 may face an IHT charge. As pension wealth could substantially increase many people’s overall estate value, your children or beneficiaries could face a large IHT bill on your death.
The Lump Sum and Death Benefit Allowance has a limit for tax-free pension payments. Replacing the old Lifetime Allowance, the threshold is currently set at £268,275. When you reach 55 (or 57 from 2028), you can take 25% from each of your pensions without paying any tax. However, the total lump sum across all your pensions must not exceed £268,275.
Pension thresholds vary depending on the scenario, serious illness and protected benefits, as well as the type of scheme. If you have over £1m in pensions, you could set up a charitable donation to reduce the likelihood of pensions breaching allowances on death. However, always speak to a qualified financial planner for advice before changing a pension.
Planning for retirement and inheritance tax
Along with tax-efficient legacy planning, it’s vital that you ensure you have enough money to live on during your retirement. If you plan to retire earlier than the State Pension age – for example, in your sixties – you could live until your mid-eighties. Therefore, you might need to plan for enough income to fund at least two decades of retirement.
Your financial plan should cover your legacy plans and your retirement income, as well as a pot of savings for emergencies. This ‘rainy day fund’ should sit outside of your estimated retirement income, so you can pay out for urgent repairs or medical treatment. Check your existing insurance policies to make sure you have adequate cover. You should also factor in the possibility of long-term care costs and the impact this could have on your savings.
Balance: Wealth Planning, Nottingham
Mansion tax might not seem like much of an issue to many people. However, if you are named in someone’s will and they own a high-value property, then you could face a large IHT bill. In addition, the mansion tax could have a direct impact on your cash flow, as well as the legacy you leave behind. It’s important to have conversations with family members as early on as possible to find ways to reduce any potential tax liabilities.
Balance: Wealth Planning has a team of qualified and experienced financial planners, who can advise you on your wealth planning strategy. We will carry out a review of your pensions, savings, investments, and any properties you own or are likely to inherit. You will be given tax-efficient strategies to help preserve your wealth and protect your legacy.
For more information, visit our Inheritance Planning page.
If you’re worried about the mansion tax or how your pensions might be taxed, get in touch to speak to our financial planning team.
Sources:
https://togethermoney.com/blog/mansion-tax
https://hoa.org.uk/advice/guides-for-homeowners/for-owners/mansion-tax-valuations/
