Bereaved families across the UK could be left with staggering six-figure tax bills due to a controversial new council tax policy, experts have warned. The mechanism, described as a 'death tax by the back door', stems from plans to allow homeowners to defer a new annual surcharge.
The Surcharge and the Deferral Scheme
The Labour government has proposed a new council tax surcharge on high-value properties, which could reach up to £7,500 per year. To assist asset-rich but cash-poor pensioners, Chancellor Rachel Reeves is expected to introduce a scheme allowing them to postpone these payments. However, this well-intentioned relief carries a significant long-term risk.
The Treasury has stated it will put a "support scheme" in place for those struggling and will launch a consultation on reliefs and exemptions in early 2026. Despite this, the decision to defer could lead to a massive accumulation of debt.
How a £2,500 Bill Becomes £140,000
Analysis by wealth management firm AJ Bell illustrates the potential scale of the problem. It assumes an annual inflation rate of 2 per cent.
For example, a 65-year-old homeowner with a property valued at £2 million, who defers an annual surcharge of £2,500, would see their debt balloon to £46,692 by the time they reach 80. The situation escalates dramatically for owners of homes worth over £5 million.
For these ultra-high-value properties, the deferred tax bill could explode to a colossal £140,077 over the same 15-year period. This debt would then need to be settled from the estate after the homeowner's death, potentially forcing a sale of the property.
Expert Warnings and Political Reaction
Shadow Chancellor Sir Mel Stride has been vocal in his criticism, labelling the plans "a new death tax by the back door". Property experts have echoed concerns about the long-term consequences for inheritors.
"Allowing pensioners to defer the surcharge could ease short-term pressure, but it does raise questions about how these bills will be settled later," said Aneisha Beveridge of estate agency Hamptons.
"Inflation means the charge will grow over time. So while it’s not an immediate crisis, it’s another layer of tax that inheritors may need to plan for – especially alongside already hefty inheritance duties," she added.
Chancellor's Defence and the Road Ahead
Chancellor Rachel Reeves has defended her overall Budget strategy, emphasising the need for economic stability. In recent comments, she dismissed the idea of using a reported small surplus for immediate relief, stating that a significant "economic repair job" was necessary.
The coming consultation in 2026 will be crucial in determining the final shape of the support scheme and whether sufficient safeguards can be built in to protect families from unexpected, life-changing debts passed on through inheritance.
