John Healey has ruled out widening Labour’s so-called mansion tax to cover homes worth £1.5m, following warnings that the tax change would hammer middle-class homeowners in the capital.
The Chancellor had been considering widening its council tax surcharge to cover homes valued at £1.5m or more, as the Treasury seeks extra revenue to fund cost of living support.
Former chancellor Rachel Reeves announced the tax raid on homes worth more than £2m last year. The levy will not come into force until 2028 but estate agents have already warned that the measure is distorting the housing market.
The planned mansion tax will hit owners of homes worth between £2m and £2.5m with a £2,500 annual charge, which rises to £7,500 for homes worth £5m or more.
Faced with a vanishing fiscal headroom, Chancellor John Healey had been urged to consider lowering the threshold of this surcharge to £1.5m. But he has now ruled out the measure, according to reports in the Sunday Times and the Financial Times.
Thousands of homeowners in the capital will breathe a sigh of relief following the news, as a widened mansion tax would have effectively doubled the number of London homes caught by the levy.
While the move would have cut the threshold by only 25 per cent it could have tripled the number of suburban London homes paying the tax, according to analysis, expanding its scope well beyond the most luxurious properties.
“Lowering the threshold for the proposed high-value property surcharge will have a wider effect on the capital’s homeowners than the label of a ‘mansion tax’ suggests,” Adam French, head of consumer finance at Moneyfacts, had said.
Londoners faced mansion tax threat
Labour’s mansion tax has been widely criticised by the political opposition. Shadow Chancellor Andrew Griffith, whose Conservative party has pledged to exempt family homes from inheritance tax, opposed plans to expand it.
“A so-called ‘mansion’ tax is a tax on family homes and could hit hundreds of thousands of people – especially in London and the South East – through no fault of their own,” he previously said.
Asked by property experts Knight Frank whether a Reform UK government would abolish the mansion tax, a spokesperson for Nigel Farage’s party said it was “against new taxes imposed without a mandate.
“As far as we are aware, a mansion tax was not in Labour’s 2024 manifesto.”
Ahead of her victory at the Holborn and St Pancras by-election, Labour candidate Sagal Abdi-Wali conceded that Londoners who do not feel rich would face having to pay the mansion tax.
She told the Standard earlier this week: “I understand that there are some homes here that are a certain level of price where people don’t necessarily feel rich and there would be a pressure on them.”
A Treasury spokesperson said: “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.”