John Healey is said to be weighing up lowering the mansion tax threshold in a “war on the middle class” that would impact nearly 300,000 homes.
The Government originally announced that an extra levy worth between £2,500 and £7,500 a year on properties worth more then £2million during the budget last November.
The initial tax was expected to hit 134,000 homes.
The Chancellor is now considering extending the levy to households that are worth £1.5million, which would see the number of homes hit with tax double to 271,000, according to current values.
Experts have claimed that the proposal could raise £800million a year.
A source told The Times that lowering the threshold was a “live discussion”.
It comes as Mr Healey is trying to find around £10bn to balance the books ahead of the budget in November.
A Whitehall source told The Times that it would introduce a more “aggressive” approach to taxing wealth.
John Healey is said to be considering lowering the mansion tax to properties worth £1.5million
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A second Government source confirmed the discussions 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.
The mansion tax is set to be introduced in April 2028 under the current scheme; properties worth £2million to £2.5million will pay an annual surcharge of £2,500, rising to £7,500 for homes worth more than £5million.
Aneisha Beveridge, the head of research at Hamptons, said that lowering the threshold would be “very challenging,” and could further distrot the housing market.
She added that, since the last budget, the number of homes valued at more than £2million has fallen by 6.5 per cent as homeowners lowered their asking prices to avoid the mansion tax threshold.
Experts have warned that the change would damage the housing market and affect families
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Mark Pollack, the director of the estate agent Aston Chase, based in London, told The Times lowering the levy would see many families forced to pay the surcharge when they are already struggling.
He said: “There is a real misconception that this would only impact the super-wealthy.
“But in London there are many people living in homes worth over £1.5million who are only just staying above the surface.
“They’ve already got to cope with rising interest rates and energy costs and this could just be the straw that breaks the camel’s back.”
Lucian Cook, the head of residential research at Savills, said: “The concern is that it will bring in too many middle-class families through London and the southeast in particular.
“No longer is it a taxation of mansions but just relatively large family homes through swathes of London as well as considerably smaller properties in the centre.
“The other risk is that people whose finances are stretched may find that they need to leave the property that they live in and are very emotionally attached to. That is one of the less palatable consequences.”
Arun Advani, the director of the Centre for the Analysis of Taxation, said: “Currently people in lower value houses pay a higher rate of council tax than those in more expensive properties.
“Lowering the mansion tax threshold would make property tax rates a bit more equal, although a transition process might be needed for some people facing a big increase in their bills.”
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.”