Mansion tax threshold cut could widen property tax net
The proposed Mansion Tax, scheduled for introduction in April 2028, could affect a significantly larger segment of the property market if the government reduces the threshold from £2 million to £1.5 million, according to tax advisory firm Blick Rothenberg.
The additional Council Tax charge on higher-value homes has generated concern among property professionals that ‘fiscal drag’ could gradually expand its reach over time, transforming what was intended as a tax on high-value properties into a more mainstream property levy.
Fiscal drag concerns
Mark Cunningham, a partner at Blick Rothenberg, warned that the absence of automatic indexation for property value thresholds could substantially increase the number of properties subject to the tax as house prices rise whilst thresholds remain static.
“A reduction would capture significantly more of the property market, and this would only increase as fiscal drag comes into play,” Cunningham said.
The issue comes as London property owners face scrutiny over tax compliance, with property taxation increasingly under the spotlight.
Under current proposals, properties will be revalued every five years, with charges increasing annually in line with the Consumer Prices Index. However, the government has stated that decisions on uprating the value bands will be made alongside each revaluation, leaving future adjustments to subsequent administrations.
Implementation timeline
Further details on the Mansion Tax may be revealed in Chancellor John Healey’s first Budget next week. Cunningham noted that once the infrastructure to identify and value higher-value properties is established, adjusting thresholds or rates becomes considerably easier for future governments.
The tax advisor suggested that indexing the value thresholds to inflation could prevent the gradual expansion of the tax’s scope. Without such measures, the levy could evolve from targeting high-value properties to affecting a broader cross-section of the housing market.
The proposed changes come amid wider regulatory shifts in the property sector, with implications for both homeowners and investors in the £1.5 million-plus market segment.
The potential threshold reduction would particularly impact property owners in London and the South East, where property values have historically outpaced other regions. The lack of automatic threshold adjustments means that properties initially outside the tax scope could gradually become liable as market values increase over time.
