The Chancellor’s proposed High Value Council Tax Surcharge, effectively a new mansion tax applied to homes worth £2 million or more, has raised significant concerns for older homeowners and advisers alike. Will Hale, CEO of Key Advice & Air, warns that while the initial scope appears narrow, history shows such taxes often broaden over time, especially as house prices rise and thresholds remain frozen.
“The Chancellor’s Mansion Tax, the High Value Council Tax Surcharge (HVCTS) proposal underlines the importance of property wealth to the UK economy and demonstrates how homeowners need to focus on the role of accumulated home equity in their wealth and estate planning and the need for specialist advice.
Initially, under the High Value Council Tax Surcharge proposal, only homes worth £2 million or more will be affected. However, experience shows that once taxes are put into effect, they tend to be extended and catch more people, particularly when considering normal house price inflation and the approach we have seen employed by the government around tax thresholds being frozen.
Many older homeowners are asset-rich but cash-poor and will struggle to pay the High Value Council Tax Surcharge without compromising lifestyle objectives. This new tax will undoubtedly put considerable financial strain on many older people who have lived in their homes for many years but who don’t have enough income to pay additional taxes.
Later life lending solutions enable borrowers to stay in the home they love and have evolved to meet homeowners’ later life income and capital needs, including financial shocks such as unexpected and unwelcome taxes. All homeowners over the age of 55 should seek financial advice to ensure they properly consider all the options available. Also, advisers across the wealth and mainstream mortgage markets need to ensure they are either equipped to advise on these later life lending products or have referral relationships in place with trusted specialist partners.
These changes announced in the Budget follow the recent FCA discussion paper around the future of the mortgage market, which recognises the need for the UK’s £9 trillion of housing wealth to be unlocked and put to more productive use for the benefit of individuals and society. This is particularly relevant for the living standards of older homeowners who often need to boost retirement income. Improving awareness of the options available is crucial, and actions should include the consideration of property wealth as standard in Government-backed guidance services such as Pension Wise and Money Helper.
Whilst the Mansion Tax might lead to a short-term spike in housing market transactions, given the phasing of the plans, the longer-term outlook is likely to put a further drag on this part of the market, which is currently highly lucrative for mortgage advisers. The later life lending market, whilst already supporting over £25bn of new borrowing per annum, is set for exponential growth and presents a fantastic opportunity for mortgage advisers to evolve their businesses, replace lost income and deliver improved outcomes for customers.
The Budget may contain some unwelcome news for both customers and the mortgage industry, but there is now some clarity on the landscape ahead. The value of advice has never been more evident, and pipelines can now be unlocked as advisers help customers move forward with their plans through appropriate consideration of all their options – including products such as modern, flexible lifetime mortgages.”
