The Government’s planned Mansion Tax could gradually extend beyond the wealthy homeowners it is intended to target and become a mainstream property tax through fiscal drag, tax advisers have warned.
Mark Cunningham, a partner at audit, tax and business advisory firm Blick Rothenberg, said the absence of automatic increases to the property value thresholds could gradually bring more homes into the tax’s scope as property prices rise.
“There is a clear potential for fiscal drag to ‘silently’ bring more and more properties into the Mansion Tax net over time, unless the value thresholds are increased to take account of inflation,” Cunningham said.
“Otherwise, Mansion Tax could start to become less of a tax on exceptional properties and more like part of the mainstream property tax system.”
The Government has announced a new charge on residential properties in England worth £2mn and above, which it says will affect less than 1 per cent of properties. The surcharge is due to come into effect from April 2028, with properties above the threshold revalued every five years. The Government expects the measure to raise about £430mn a year for local government services.
Cunningham said reports that ministers were considering lowering the threshold from the originally proposed £2mn to £1.5mn would significantly broaden the number of properties potentially affected.
“The Government is reported to be considering reducing the Mansion Tax threshold from the originally proposed £2m to £1.5m,” he said.
“A reduction would capture significantly more of the property market, and this would only increase as fiscal drag comes into play.”
The issue is particularly significant because the proposed system envisages regular property revaluations but does not automatically link the entry thresholds to inflation.
“Properties are currently expected to be revalued every five years, while the charges themselves will increase in line with Consumer Prices Index (CPI) each year,” Cunningham said.
“However, there is no automatic indexation of the property value thresholds. Instead, the Government has said that decisions on whether to uprate the bands will be taken alongside each revaluation and therefore left to future governments.”
That creates the possibility that properties whose values rise primarily because of general house-price inflation could eventually be brought within the tax even if they would not traditionally be regarded as exceptional homes.
The Government has argued that the existing council tax system has failed to keep pace with property values, pointing to the disparity between the tax paid on multimillion-pound homes and less valuable properties elsewhere in England. It says the new charge is intended to address that imbalance.
Cunningham said the creation of a system capable of identifying and regularly valuing high-value properties could itself make future changes to the tax easier.
“Once the Government has established the infrastructure to regularly identify and value higher value properties, adjusting the thresholds or rates in future also becomes much easier.”
The warning highlights a potential long-term issue for homeowners: the initial threshold would determine who pays the surcharge when the system is introduced, but future governments would retain significant influence over how widely the tax applies.
If property values rise while the threshold remains unchanged, the number of homes caught by the charge could increase without any formal decision to expand its scope.
For homeowners and the property industry, the key question may therefore extend beyond the initial design of the Mansion Tax to how its thresholds evolve over successive revaluations.
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