John Healey rules out cutting 'mansion tax' threshold to £1.5mn in UK Budget

Chancellor John Healey will not cut a planned "mansion tax" threshold from £2mn to £1.5mn in this month's Budget, after Labour MPs warned that the move would hit the governing party in its central London strongholds.

The Treasury last month declined to comment on "speculation" that ministers were considering doubling the number of property owners forced to pay the new levy in England by reducing the threshold on October 28.

But the chancellor has concluded that changing the rules around the levy -- which is due to come into effect in 2028 -- would undermine public support for the policy, according to people familiar with the discussions.

The idea of cutting the threshold to £1.5mn, reported by the Times, led to a backlash from many Labour MPs. Some warned that the measure would be "electoral suicide" for the party in parts of central London where property prices have soared in recent years.

A reduction from £2mn would have increased the number of properties affected by the measure from about 127,000 to roughly 243,000, according to research group Tax Policy Associates.

Last year Rachel Reeves, then chancellor, announced that homes in England valued over £2mn would have to pay the new annual levy from April 2028.

It will start at £2,500 on properties just over £2mn and rise to £7,500 for homes valued at more than £5mn.

Reeves had considered setting the threshold at £1.5mn but decided it was politically risky after representations from Labour MPs in London and the South East.

The Office for Budget Responsibility, the fiscal watchdog, estimates that the tax will hit less than 1 per cent of UK properties, raising a relatively modest £400mn a year by 2029-30.

The new regime requires a revaluation of properties in the top three council tax bands -- F, G and H -- in the first such revaluation since 1991.

The surcharge will be levied on top of the existing council tax charge, but unlike council tax it will end up in the coffers of the Treasury, not with local authorities. Homeowners will be able to roll up the annual payments and defer them until they move house or die.

Healey's preparations for his first Budget have been hit by higher government borrowing costs and the economic fallout of the Iran war.

He also needs to find money to fund higher defence spending, address household energy costs, hold down fuel prices and tackle long-term youth unemployment.

But the chancellor is expected to limit fresh tax rises by allowing the existing "fiscal headroom" in the Treasury's forecasts to be reduced significantly.

The Treasury declined to comment.