Thousands more homeowners could face the government’s new mansion tax if ministers lower the proposed threshold from £2m to £1.5m.
The High Value Council Tax Surcharge (HVCTS) is due to start in April 2028. Under current plans, it will apply to homes in England worth at least £2m.
However, reports suggest ministers are considering cutting the entry point to £1.5m.
Such a move would widen the tax net significantly. London and the South East would be particularly exposed.
Until recently, rising mortgage rates had been the main concern for the housing market. The Middle East conflict has increased pressure on borrowing costs and inflation.
Meanwhile, the pre-Budget speculation that unsettled buyers and sellers last year had been relatively subdued.
That changed over the weekend following reports of a possible £1.5m threshold.
Speculation about a potential increase in Capital Gains Tax has also resurfaced.
For now, the government’s confirmed policy remains unchanged. Annual HVCTS charges are set to range from £2,500 to £7,500 under the existing proposals.
‘Government would be widening the tax net’
Tom Bill, head of UK residential research at Knight Frank, warned that a lower threshold would cause concern in higher-value markets.
He said: “The proposal to drop the lower threshold for the HVCT will cause concern in outer London boroughs and parts of south-east England in particular.
“Anyone in a home whose value could reach seven figures in the next several years must wonder if they will be next. If the current speculation proves accurate, the government would be widening the tax net before the measure has even been introduced.”
Bill also expects the tax bands to influence negotiations between buyers and sellers.
He added: “Whatever bands are used, it will inevitably lead to more pointed negotiations between buyers and sellers and bunching below price thresholds, creating the sort of distortions that existed under the stamp duty slab system.”
Impact on moving decisions
The tax could also influence decisions about moving home.
Some buyers may think twice about trading up. Conversely, existing owners could decide to downsize to avoid the surcharge.
Bill said: “It may discourage up-sizers but could have the opposite effect on downsizers as homeowners seek to avoid paying higher charges.
“That could lead to headlines about asset-rich and cash-poor elderly individuals being forced to move from neighbourhoods they grew up in, which may be a political trade-off the current administration is prepared to make.”
The government has acknowledged concerns about homeowners with valuable properties but limited incomes. Its consultation includes proposals allowing some owners to defer payments.
Valuation headache could treble
A £1.5m threshold could also create a much bigger challenge for valuers.
Knight Frank estimates that 73,600 properties are worth between £1.8m and £2.2m. This represents the valuation “grey area” around the proposed £2m threshold.
Bill said: “Initially, the thresholds will also present a problem for valuers, especially if the entry point drops to £1.5 million.
“Knight Frank estimates there are 73,600 properties worth between £1.8 million and £2.2 million, which is the valuation grey area either side of the proposed bottom threshold.
“If that dropped to £1.5 million, the grey area would expand to 222,800 properties, trebling the size of the valuation headache.”
The Valuation Office Agency will carry out valuations under the existing proposals. Qualifying properties will then be placed into one of four bands.
The £1.5m threshold remains speculation. The government’s published policy still sets the starting point at £2m from April 2028.
