Plans are reportedly being considered to lower the threshold for the government's "mansion tax" to £1.5 million, a move that could impact an additional 150,000 families, particularly in southern England. This adjustment to Chancellor Rachel Reeves's "high value council tax surcharge" could result in four-figure tax hikes for homeowners.
The current plan, set to take effect in April 2028, applies to properties valued over £2 million. Under this existing framework, homeowners face an annual surcharge of at least £2,500, escalating to £7,500 for properties exceeding £5 million. Approximately 180,000 properties are expected to be affected by these initial plans.
However, sources suggest that lowering the threshold to £1.5 million could bring an estimated 150,000 more households into the tax bracket. Michael Bruce, CEO of estate agent Purplebricks, noted that such a policy could negatively impact the fragile housing market, which is a significant economic driver. He stated that policies discouraging home movement affect not only homeowners but also buyers, sellers, tradespeople, retailers, and the broader economy.
This potential tax expansion is occurring amid pressure from some Labour MPs, particularly those representing former Labour heartlands in the Midlands and North, to implement wealth taxes to cover the rising costs of welfare and public services. The Unite union has also advocated for wealth taxes to protect public services.
Prime Minister-in-waiting Andy Burnham has hinted at potential tax increases, stating there is "some room for movement on tax" beyond manifesto promises not to raise income tax, VAT, or national insurance. He has previously proposed cutting business rates for certain high street businesses, funded by higher levies on warehouse operators and owners of vacant properties.
Conservative leader Kemi Badenoch criticized the proposals, labeling them as "Labour's politics of envy" and arguing that the party's approach involves increasing taxes on working families rather than cutting spending.
There are also discussions about replacing council tax with a land value-based system, which some analysis suggests could lead to significantly higher payments in the South of England compared to the North due to regional property value differences. A proposal from the Labour Red Wall Group of MPs, which Burnham has previously endorsed, suggests replacing council tax and stamp duty with an annual levy of 0.48 percent of a property's value. Under this model, a £500,000 property would be taxed £2,400 annually. Analysis indicates that such a system could result in average bills of £1,650 per year in the South, compared to £600 in the North.
The possibility of the "mansion tax" extending to lower-value properties has reportedly already influenced the market, with a decrease in the number of homes for sale above £2 million, potentially increasing pressure to lower the threshold further.