Labour is reportedly considering dramatically widening its so-called “mansion tax”, potentially dragging around 270,000 homes into the levy before the controversial charge has even come into force.
Chancellor John Healey is examining whether to lower the starting threshold for the High Value Council Tax Surcharge from £2 million to £1.5 million, according to reports in The Times and The Telegraph.
The proposal remains under consideration and has not been confirmed as Government policy, but Reuters also reported that two government sources had said lowering the threshold was being discussed within the Treasury.
If adopted, it would more than double the number of properties expected to be caught by the tax, raising fresh questions about how far Labour could ultimately extend a levy originally presented as targeting only the most expensive homes.
Former Chancellor Rachel Reeves announced the surcharge at last November’s Budget, with the scheme due to begin in England in April 2028.
Under the plans already announced, properties valued at £2 million or more would face an additional annual charge of £2,500, on top of their existing council tax bill.
The charge rises to £3,500 for properties valued between £2.5 million and £3.5 million, £5,000 between £3.5 million and £5 million, and £7,500 for properties valued above £5 million.
Around 134,000 properties were initially expected to fall within the scheme, according to figures cited in the latest reports.
But lowering the threshold to £1.5 million could bring the total to approximately 271,000 properties based on current valuations.
That means Labour is considering broadening the reach of a new tax before homeowners have paid a single penny of it.
Tax expert Dan Neidle, founder of Tax Policy Associates, has modelled what a £1.5 million threshold could mean. His analysis suggests that, depending on how the bands and charges were restructured, an expanded version of the tax could raise close to £800 million a year.
But Mr Neidle has also warned of a significant problem with changing the tax before it has even been introduced, arguing that stability and predictability are important features of a functioning tax system.
The debate will inevitably fuel fears of what critics often describe as fiscal “threshold creep”, once a new tax exists, what is to stop a future Chancellor lowering the threshold again?
There is currently no Government proposal to extend the levy to £1 million homes, let alone £750,000 properties, and claims that it will definitely do so would be speculation.
But critics of the policy are already questioning where the line will eventually be drawn. A £1.5 million property may sound like a mansion on paper, but in parts of London and the South East, soaring property values mean ordinary family homes bought decades ago can now command seven-figure prices.
If the principle is established that the threshold can be moved from £2 million to £1.5 million before the tax has even started, opponents will inevitably ask whether £1 million, or even £750,000, could one day become politically tempting targets for a cash-strapped Treasury.
That uncertainty risks becoming another headache for homeowners already facing high council tax, stamp duty and the wider tax burden.
The geographical impact would also be heavily concentrated.
Analysis cited by The Telegraph suggests around half of properties in the proposed new £1.5 million to £2 million bracket would be in London, with another quarter in Surrey and Oxfordshire.
Four London councils, Wandsworth, Kensington and Chelsea, Westminster and Richmond, have already written jointly to the Chancellor calling for the existing mansion tax plans to be reconsidered.
The councils argue the surcharge could disproportionately affect people who are asset-rich on paper because their homes have appreciated significantly, but who do not necessarily have the income to comfortably meet another annual tax bill.
There are also concerns about the effect on the housing market.
TV property presenter Kirstie Allsopp has warned that homeowners approaching the threshold could become reluctant to improve or maintain their properties if doing so risks pushing the valuation above the point at which the surcharge becomes payable.
For Labour, however, the attraction is obvious, the Treasury needs money.
Healey is preparing for his first Budget as Chancellor on October 28, amid pressure on the public finances from higher borrowing costs and spending commitments.
The danger for taxpayers is that once governments become accustomed to raising money by expanding the number of people caught by an existing tax, yesterday’s tax on “the rich” can become tomorrow’s tax on considerably more ordinary households.
That is precisely why the discussion over the £1.5 million threshold matters.
This is no longer simply a debate about whether owners of £5 million mansions should pay another levy. Labour is considering extending the tax to tens of thousands of additional homes, many of them family properties whose owners may never have regarded themselves as mansion-dwelling millionaires.
And homeowners below £1.5 million will be entitled to watch what happens next very carefully.
A Treasury spokesman, responding to the reports, said tax decisions were for the Chancellor to announce at fiscal events and declined to comment on “rumour, speculation or proposals”.
The Telegraph reported that the potential expansion could take the number of properties affected to around 270,000, while The Times first reported that lowering the threshold to £1.5 million was under active consideration.
