Mansion tax to ‘replace’ top-rate tax band

28th March 2011

The Liberal Democrat leader said the top rate would be eliminated once people on lower middle incomes were "breathing more easily" but only if it was accompanied by a new tax regime for high-end properties.

A so-called "mansion tax" was part of the Lib-Dems election manifesto last year but not something adopted by the Coalition Government. If adopted it's likely to take the form of council tax or stamp duty.

Mr Clegg told the Financial Times: "A liberal tax system rewards work and enterprise and captures pollution and unearned wealth."

In last week's Budget George Osborne said the 50p rate on incomes over £150,000 was temporary although he wasn't scrapping it yet.

 The Chancellor has ordered a review into the 50p rate introduced by Gordon Brown, to see if wealthy earners pay the tax or simply find ways to legally dodge it.

Osborne also said that tax evasion and avoidance is widespread in the area of very high-value property; one dodge is for properties to be bought by a company, thus avoiding normal rates of stamp duty.

However, some critics questioned how much revenue could be raised by a new mansion tax.

"If the coalition think taxing house sale transactions over £2m will raise the same or more than the 50p rate of tax, then they may be sorely disappointed," said Nigel Lewis, property analyst at Primelocation.

"Some 1,500 £2m+ homes were sold over the past year in the UK, a turnover of £3billion, and even if the Government were to raise stamp duty to say 20% (it's currently at 5%) this would only bring in revenue of £600m – far less than the £3billion the 50p rate of tax is estimated to have raised this year."

Lewis added that the million pound market is the only part of the UK housing market showing significant signs of life at the moment compared to the rest. Slowly down this part of the housing market, he said, would affect the whole economy.

"Assuming the ‘mansion tax' dampens down the top end of the market, this would mean less work for all those in jobs connected to house sales, such as surveyors and solicitors, which can hardly be good news for the wider economy," he warned.

The story was keenly debated on The Telegraph.

Andrew Campbell wrote: "Has nobody thought what a tax like this would do to retirees? After paying of the 25-year mortgage of your now £1 million+ house and retiring, you're expected to shell out £10,000 a year (if the tax is 1%) for the honour of owning a decent house. How many retirees are going to be able to afford that?"

Meanwhile other readers doubted the tax would ever be bought in by a Conservative-led Government.  Zzarza wrote: "There is not a hope in hell that Conservative backbenchers in the south of England will allow this to go through, too many of their elderly voters live in million pound plus houses, but who have very low income, they would not take very kindly to being told: ‘Well if you haven't got the money to pay the tax then move.'"

See also: £250m first time buyer initiative 'will end up propping up the property market'

 

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