The “former matrimonial mansion” – how the new “mansion tax” could reshape divorce

In most family law cases, the matrimonial home is the most significant asset and the question of how both parties, and the children, will be rehoused in suitable alternative accommodation is the focal feature.  The “former matrimonial home” or “FMH” has become a well-known shorthand in family law cases to describe the main property in which the parties lived during the relationship. Following Rachel Reeves’ announcement in the 2025 Budget, in higher value cases, many of these properties may soon inadvertently be dragged into the category of “former matrimonial mansions” and consequently subject to a council tax surcharge (dubbed the “mansion tax”) with effect from April 2028. The consequence will be an additional tax burden of between £2,500-£7,500 per annum. (More has been written about this from a property law perspective by our private client colleagues: Autumn Budget: impact on the prime and super prime property market)

This change is likely to have wide reaching, and doubtless unintended, real life practical consequences for families going through divorce and separation.  Absorbing this additional, not insignificant, cost into household budgets when individuals are already feeling the squeeze will not be easy. The impact may require parties who have already reached agreement on housing arrangements and maintenance, to revisit some aspects of their agreement (to the extent possible).

But, perhaps more significantly, is the anticipated wider impact of the new tax on the property market.  Already many parties have remained stuck in a family home they cannot sell due to the property market freeze caused by pre-Budget leaks over the last few months.  The new tax will do nothing to improve liquidity in the property market for properties over £2m in value. There are many and varied potential wider implications for the property market with negative consequences for separating parties who are already experiencing an extremely difficult time: prolonged marketing periods and price softening complicate rehousing timelines; increased interim borrowing or rental costs squeeze resources; settlement agreements that are reliant on the prompt realisation of equity from the family home (often the main asset available to a couple to share on separation and divorce) may be destabilised.  All of this has a real detrimental emotional impact on families and children.

This may be all the more likely to impact London families where the concentration of properties valued in excess of £2m will be greater than elsewhere in the country.  Imagine a scenario where, say, a London family home is currently valued at £4m but where this will need to be sold to purchase two properties in excess of £2m each.  The household will need to find a minimum of a further £5,000 a year from taxed income to fund the new mansion tax. This is all felt even more acutely when new property taxes are piled on top of VAT on school fees which many parents have already had to bake into maintenance assessments.  Some families may find themselves in the invidious position of no longer being able to afford to live in a home they moved to specifically for a state school catchment area, having given up a place at a fee-paying school due to the unaffordability of school fees.  Alternatively (or additionally) parties may need to recalibrate expectations about property size, location, and school‑catchment proximity if homes - particularly in the £2m plus housing bracket targeted by Rachel Reeves - are no longer affordable.

Whilst we wait to learn more about the fine tuning of this new tax and its implications on the property market, it seems likely that its impact will already be felt in high value divorce/separation cases.  Time will tell just how big the shock waves are after it comes into effect from 1 April 2028 and the extent to which (despite current intentions to move the bands in line with inflation) less valuable properties are, with time, “fiscally dragged” into the mansion category if the £2m threshold does not keep step with the housing market.