Treasury weighs lowering mansion tax threshold to £1.5m

The government is actively considering reducing the threshold for the annual mansion tax to properties valued at more than £1.5m. This proposed adjustment would extend the levy to approximately 271,000 homes based on current valuations. The move comes as Chancellor John Healey seeks to identify additional revenue to balance the public finances ahead of the Autumn Budget in October.

The original mansion tax was introduced in last year’s Autumn Budget by former chancellor Rachel Reeves, targeting properties worth more than £2m. Under the current rules, owners of homes above this valuation will pay a £2,500 annual charge from April 2028. Higher bands apply to more expensive properties, with fees rising to £3,500 for homes valued between £2.5m and £3.5m, and £5,000 for those between £3.5m and £5m. These charges are applied in addition to standard council tax obligations.

Government sources have described the potential lowering of the threshold as a live discussion within the Treasury. Healey faces mounting pressure to reduce his fiscal headroom from £23bn to £5bn, a challenge exacerbated by rising government borrowing costs linked to the conflict in Iran. Economists suggest that tax increases, particularly on wealth, are likely to be necessary to meet these targets. However, the government has indicated it will not proceed with overhauls of stamp duty or council tax, despite previous support from prime minister Andy Burnham.

Critics have warned that lowering the threshold could negatively impact the property market. They argue that homeowners may deliberately undervalue their properties or neglect maintenance to avoid crossing the £1.5m limit. Kirstie Allsopp, presenter of Location, Location, Location, told Times Radio that the policy would discourage people from adding value to their homes. She noted that owners near the threshold would be terrified of their property value increasing, leading to a decline in basic upkeep and investment in their homes.