The government is actively considering lowering the mansion tax threshold to properties worth over £1.5m, a move that would bring nearly 271,000 homes into scope.
Labour originally introduced the levy on properties worth more than £2m as part of former chancellor Rachel Reeves’ Autumn Budget last year.
Under existing plans, properties above that valuation are set to face a £2,500 annual charge beginning in April 2028, on top of council tax bills.
Homes valued between £2.5m and £3.5m face a steeper £3,500 annual fee, with the charge climbing further to £5,000 for properties worth between £3.5m and £5m.
Chancellor John Healey is now reported to be debating whether to extend the levy by significantly lowering the entry threshold to £1.5m.
Government sources told The Times that reducing the threshold remains a “live discussion” inside the Treasury as Healey searches for £10bn to balance the books ahead of October’s Autumn Budget.
The chancellor is under mounting pressure after the war in Iran sent government borrowing costs spiralling, squeezing his available fiscal headroom considerably.
Healey is aiming to reduce his headroom from £23bn to £5bn, leading economists to conclude that wealth-targeting tax rises are now largely inevitable.
Despite calls from Prime Minister Andy Burnham before he entered Downing Street, the government is not planning to overhaul stamp duty or council tax at this stage.
Opponents of the expanded mansion tax have warned that lowering the threshold could seriously distort the property market, encouraging homeowners to deliberately undervalue their properties.
TV property presenter Kirstie Allsopp voiced strong concerns on Times Radio, warning that the move would discourage homeowners from investing in their properties.
Allsopp said: “It’s going to stop people adding value. It’s going to stop people doing basic maintenance, because everyone is going to be terrified of sending their property, which is worth £1.3 or £1.4m, over the £1.5m threshold.”
She added: “And anyone whose property is just over the threshold, they’re actively going to be damaging the value.”
Allsopp concluded: “People are going to stop looking after their homes for fear of the day when the person comes around and says, your home is worth more than £1.5m.”
The warning signals a broader concern that the tax, designed to raise revenue from wealthy homeowners, could have significant unintended consequences across the wider housing market.