The Government is considering plans to extend the mansion tax to properties worth more than £1.5 million in a major blow to thousands of London homeowners.

The planned levy announced in last November's budget will see homes valued at more than £2million having to pay between £2,500 and £7,500 each year from April 2028.

But John Healey, the chancellor, is now considering extending the levy to properties worth more than £1.5 million, according to the Times.

It would mean the number of properties caught by the tax would more than double to 271,000 homes based on current values.

A large number of the homes being pulled into paying the tax would be in London, with tens of thousands of homes expected to be affected.

Two government sources told The Times that lowering the threshold was a “live discussion” in the Treasury as Healey seeks to find about £10 billion to balance the books in the budget on October 28. Experts have suggested that reducing the mansion tax threshold could raise £800 million a year.

The chancellor is under mounting pressure to find more cash after the war in Iran sent the cost of government borrowing soaring, reducing his fiscal headroom.

With many economists believing tax rises are inevitable, a Whitehall source said the Government is looking at a more “aggressive” approach to taxing wealth.

They said bringing more people into paying the mansion tax was the "most viable option" because the Valuation Office is already identifying homes worth more than £2 million, "so it isn’t a massive change to capture those over £1.5 million”.

A second government source confirmed the discussions to the Times but said there were concerns that the change would hit more modest properties in London and affect people who are not wealthy. They emphasised that no decisions have been taken.

Prime Minister Andy Burnham has not ruled out more tax rises as he presses ahead with his radical reforms for Britain including the biggest “devolution of power in modern times”.

He has signalled that he may increase levies on the better off to fund measures to ease the cost of living for millions of households struggling to make ends meet.

Mr Burnham has previously supported a new property tax, to replace council tax and stamp duty, which would land the capital with an extra £7.5 billion bill.

But the PM has made clear that he has no plans to imminently introduce such a major homes tax shake-up.

Aneisha Beveridge, the head of research at Hamptons, said lowering the threshold would further distort the housing market.

She said, since the last budget, the number of homes valued at more than £2 million has fallen by 6.5 per cent as homeowners lowered their asking prices to avoid the mansion tax threshold.

Last month London leaders urged the Chancellor to ditch the planned mansion tax as it was revealed that it will cost families across just four London boroughs £270 million a year.

House prices have dropped in 20 London boroughs in a year, official figures revealed this week.

The biggest slump was in Westminster, down 20.7% from £1,106,000 for the average house price in July 2025 to £877,000 this summer.

Four boroughs have seen falls of more than 10%.

A Treasury spokesman said: “As has always been the case, decisions on tax are a matter for the chancellor to set out at fiscal events, rather than routinely commenting on rumour, speculation or proposals.”