Labour is considering lowering the mansion tax threshold from £2 million to £1.5 million, a move that would more than double the number of homes caught by the levy to about 271,000, The Times reported on Friday.
The report, carried by Reuters on Friday evening, said ministers are weighing extending the high-value council tax surcharge to properties worth more than £1.5 million. Citing two government sources, The Times described the cut in the mansion tax threshold as a “live discussion” within the Treasury.
The proposal lands days after four London councils — Wandsworth, Kensington and Chelsea, Westminster, and Richmond — wrote to Chancellor John Healey warning that the levy could cost their residents £275 million a year. Londoners would be disproportionately affected: a large share of homes valued above £1.5 million sit inside the capital.
Mansion tax threshold: what the government is considering
Under the current plan, announced at last year’s Budget, homes in England worth more than £2 million face a new annual surcharge from April 2028 — £2,500 a year for properties between £2 million and £2.5 million, rising to £7,500 for those worth more than £5 million. The levy was expected to hit about 134,000 homes.
Lowering the mansion tax threshold to £1.5 million would more than double that figure to 271,000 homes based on current property values, according to The Times. Experts have suggested the expanded levy could raise around £800 million a year.
The Chancellor is under mounting pressure to find about £10 billion to balance the books in his first Budget on 28 October. The Times reported that the war in Iran has sent the cost of government borrowing soaring, reducing his fiscal headroom from £23 billion to as little as £5 billion — making tax rises likely.
A Whitehall source told the newspaper that lowering the threshold was seen as the most viable option for raising revenue: “This is seen as the most viable option because the Valuation Office is already doing the work to identify the homes worth more than £2 million, so it isn’t a massive change to capture those over £1.5 million.”
Treasury declines to comment on ‘rumour and speculation’
The Treasury refused to confirm or deny the discussions. A Treasury spokesperson told Reuters: “As has always been the case, decisions on tax are a matter for the Chancellor to set out at fiscal events, rather than routinely commenting on rumour, speculation or proposals.”
A second government source confirmed the discussions to The Times but raised concerns that the change would hit more modest properties in London and affect people who are not wealthy — emphasising that no decisions have been taken.
London councils already at war over the levy
The revelation deepens a growing row between the capital’s boroughs and the Treasury. This week the four councils wrote to Healey calling on him to rethink the surcharge, describing it as the worst idea since the window tax of 1696, which charged homeowners based on the number of windows they had.
“It is simply wrong to assume that everyone living in these homes is wealthy,” the councils said. “Many are not and some will be forced to sell the family home simply to meet the tax. It cannot be an acceptable situation that our residents could lose their home through no fault of their own, to pay a tax that they could not have envisioned when they bought their home.”
Lucian Cook, head of residential research at Savills, told The Times: “The concern is that it will bring in too many middle-class families through London and the southeast in particular. No longer is it a taxation of mansions but just relatively large family homes through swathes of London as well as considerably smaller properties in the centre.”
Arun Advani, director of the Centre for the Analysis of Taxation, said people in lower-value houses currently paid a higher rate of council tax than those in more expensive properties. “Lowering the mansion tax threshold would make property tax rates a bit more equal,” he said, “although a transition process might be needed for some people facing a big increase in their bills.”
Read our earlier report on the four London councils’ warning that the mansion tax could cost residents £275 million.
What happens next
Healey declined to comment on tax policy when asked about potential hikes this month, and the Treasury stressed that no final decisions have been taken. The Chancellor’s first Budget is due on 28 October, when the fate of the mansion tax threshold — and its impact on London’s housing market — is expected to become clear.
