'Mansion tax' - what if you just can't pay it?

[shellinthesea]

My elderly mum lives in a London house worth about 2million. She's been there for over 50 years, and is physically and mentally fragile. There is no way she would EVER want to move, the house and her neighbours are her whole world. She has no spare money - at all. (Neither do I, before anyone suggests this!) How is she supposed to manage this? It's not exactly her fault that the value of the property increased so much since my parents bought it all that time ago.

I also have a friend, also in London. Both parents sadly died in an accident about 15 years ago, and she used her inheritance to buy a family home which has also increased massively in value. It's probably also worth over 2 million now! She's a single mum on a lower income with 3 kids who very happy at their local school and within their community - what's she supposed to do?

It's just not as simple as 'you live in a high-value house, you can obviously afford to pay several grand a year' as RR seems to think. And for anyone who is about to say 'oh tiny violin, their houses are worth two million' - both of these situations are complicated and quite sad in many ways. Neither my mum nor my friend can simply just sell up and move...anyone have any thoughts on this?

It's not a "con" it's just expensive.
If the value of the house is arbitrary, because they're just living in it, what's the issue with equity release? If there's no benefit to it being worth £2m, then there's no downside to spending some of it's value.

Fully aware of how ridiculous it all sounds. Yes of course 2 million is a lot of money and I know their are bigger priorities - the failing health service, children in poverty, people living on the streets who don't have homes to worry about.

But what I am saying is, in my mother's case - a move now would be very, very disruptive for her. I could go as far to say it could kill her, which may sound melodramatic, but she has complex problems and it's possible. Either way, it would massively risk her health and mental state.

If I were selfish I and my siblings would have been encouraging her to move years ago - bluntly, we would have all benefitted financially under the current IHT rules if she'd sold up, bought a cheaper place, gifted us the remaining money and lived for 7 more years. But we'd never ask that of her.

Would she like to swap for my parents' house in the SW that's worth about £200k and will almost certainly have its value swallowed up by care home fees?

I didn't think so.

Equity release. She doesn't have to move. You will still inherit lots.

Everyone saying people should ‘just do equity release’ - have you ever actually looked at the rates charged on equity release schemes? Would you advise someone to ‘just get a payday loan’ to pay a tax?

Also you’re not forced to move if you can’t pay your rent anymore under the new renters reform bill. It’s ludicrous that if you can’t find a similar property for the same rent you can literally refuse to move out - but somehow a person that has worked hard and sacrificed for a good family home is told to just move if you can’t afford the council tax - sad that you can work hard your whole life and then. E thrown out of your home in the end (home owners only - obviously not tenants)

‘Fully aware of how ridiculous it all sounds.’

Finally, some self awareness .

@shellinthesea I completely agree with you. I don’t understand why the more wealthy get treated with such contempt! The gov are constantly making it less appealing to work or to own a house or to try and make a nice life because you get squeezed and squeezed. Whereas someone on benefits gets more and more hand outs. The amount of money we waste in general is bonkers, not to mention the absolute car crash of our benefits system. For instance, if we look at 2 different types of families. One is your mum. In a 2 million pound house but which is far from a mansion. She has paid for this house years ago, and lived there most of her life but doesn’t have much income. Another family of 4. 2 parents not working and on UC, also both claiming PIP and carers allowance, 2 kids on DLA. Household income of 5k a month. They pay no tax on that sum. Rent is paid for. Free dental. Free prescriptions. Free car tax. Yet the family on benefits are the ones who get extra. The family on benefits are the ones who are classed as “in poverty”. And it’s your mum who is the one who is forced out of her home. 🤷‍♀️

That is shocking. This system is not fit for purpose.

Your mum is extremely wealthy and extremely lucky to never have had to downsize like most people.

It’s absolutely a good policy.

Who loses out in this instance though. Not the little old ladies being portrayed here - the beneficiaries who are eyeing up the house.

I’m not far from this. We live in London and our house is worth 1.6 million (bought for £450 17 years ago and added £200,000 in extensions) so if house prices keep going to we’d be swept up too but seriously be honest - this is NOT about elderly people being forced out of their homes.

She could swap for my dad’s house, circa £170k up north. It’s got 3 bedrooms so she’d have more room… he’s on a state pension but not as badly off as it seems OPs mum is.

A old acquaintance of mine asked her parents to do equity release on a modest house to help her out with a messy divorce. It’s not without its problems and you have to live for seven years after it’s implemented or you pay more tax ( I believe?) It was a lot for them to sort out and caused a big headache for them. It wasn’t easy and I’m sure that other people make money out of it too. I suppose it’s a way of getting some money , but it seemed a bit extreme and not for everyone.

Woe is me, I/my family benefit from huge house price inflation but god forbid I be expected to give a small percentage of this unearned wealth back - which I can easily do by equity release, deferring payment until I’m dead or by downsizing.

it is a non issue.

Of course it's a ridiculously mean spirited tax. It is not our fault that the gov't have not built enough homes, causing house prices to rise to ludicrous levels. A terraced small house in many parts of London is now worth over 2 million and is certainly not a mansion....it will have a tiny garden and a minuscule footprint. What Rachel doesn't seem to realise is that there is so much money you can take from people before they just leave the country for a better quality of life. Why not restrict ownership to overseas buyers who only buy as an investment?

So what are you suggesting @shellinthesea. Lots of people, including elderly people, have to move/downsize if their income doesn't meet their outgoings. Should only the owners of very expensive properties be exempt?

In your mum's case, she could take a loan against the value of her home, to be repaid once she moves out/dies, just like other elderly people do to cover their care costs.

Unearned property wealth and pensioners not downsizing are two of the biggest reasons why family homes have become completely unaffordable for actual families in London and lots of other places in the U.K.

Of course there are some (a minority) with special circumstances but that’s not a reason not to try to address the problem for the greater good.

My parents aren’t quite in this position, but, they do own a house worth well over a million and they are both pensioners with very little coming in. Obviously the house is paid off, but the council tax is over £400 a month and they are struggling to afford it.

They are desperately trying to sell, despite loving their home and it being in the family since 1980. It’s been on the market for ages, but guess what, no one can afford to buy it.
So I can imagine this being a massive worry for many already quite vulnerable people.

‘If I were selfish I and my siblings would have been encouraging her to move years ago - bluntly, we would have all benefitted financially under the current IHT rules if she'd sold up, bought a cheaper place, gifted us the remaining money and lived for 7 more years. But we'd never ask that of her.’

Wow, how truly selfless you all are… I sincerely hope she’s willed the lot to a charity.

I think op from what I have heard it sounds as if it might be payable on sale/ her death?

This fits with the notion that taxes should be levied on money in hand, for the very practical reason of enabling them to pay it.

This. It’s a spite tax. As is the salary sacrifice changes which disproportionately affect private sector pensions.

Think we may just choose to retire early and sell up.

Pay less income tax as a result (note not taking benefits just finance ourselves). Sell the big family house and downsize.
Give money to kids to buy their own property now, earlier enough to stop any future inheritance tax payments.

Huge net loss to HMRC.

In both cases I think it would be wise to move house. In most areas it’s possible to sell and downsize to a smaller place. For the single parent she may well have to do this anyway to meet fees for university etc.

If your mother really can’t move, could she do equity release or could one of the siblings pay the extra tax and then get extra from the inheritance to cover this? I suspect there may end up being some exceptions for elderly people on very low incomes and who have medical reasons to remain where they are once the policy is implemented.

Either way there is a way around this.

Put a charge on the house and when she dies/goes into care it pays the government first.

most people who have houses over 2 million can pay it.

Okay, off you pop and retire. We’ll cope.
or move to Dubai, that’s the other popular claim on MN…

eh? The country is skint because we spannered our ability to export to/import from our nearest economic neighbours.

oh and the previous government stripped assets, spaffed money up the wall and came up with a disastrous budget under an iceberg lettuce leader.