£1.5m homes ‘to avoid new mansion tax’

Homes worth £1.5m will avoid being hit with Labour’s new mansion tax after John Healey is said to have rejected proposals to lower the threshold in his upcoming budget.

The tax was announced by Rachel Reeves last year, with homes in England valued at £2m and above set to be hit with an annual levy which will start at £2,500 on properties just over £2m and rise to £7,500 for homes worth more than £5m.

While there was some speculation that Mr Healey was weighing up cutting the threshold to £1.5m to raise more money, sources told The Times that the chancellor believes that changing the rules before the ­surcharge begins in April 2028 would risk undermining public support for the reform.

Lowering the threshold to £1.5m would have meant the number of homes hit by the new tax would increase from 134,000 to 271,000.

His decision to reject such a move comes after Tory leader Kemi Badenoch put home ownership at the centre of her Conservative Party Conference speech, promising to abolish death duties on all “family homes” and allow couples to leave behind an additional £1 million tax-free. She also promised to scrap mansion tax on properties in England.

“The Conservatives are and always have been the party of home ownership. We understand why putting roots down and having a stake in society matters”, she told the conference.

"Our homes are where we watch our children take their first steps. They are where we gather every Christmas to put up the same decorations. Passing on your home to your family is one of the most human instincts of all.”

Mr Healey is facing growing pressure to raise taxes or cut spending at next month’s Budget, as soaring borrowing costs because of the Iran war and weaker growth has wiped nearly billions off the government's fiscal headroom.

But despite the bad news, on Monday new forecasts from the International Monetary Fund showed that the rise of artificial intelligence is driving an increase in economic growth in the UK, handing a boost to Mr Healey ahead of his first budget.

The new report indicates that Britain's economic outlook has improved more than almost any other major economy over the past six months.

In its latest World Economic Outlook, the IMF said UK GDP is set to grow by 1.3 per cent in 2026 — an upgrade of 0.5 points from its April forecast, despite the energy shock triggered by the war in Iran war having lasted longer than expected.