£1 million property faces extra tax
The Liberal Democrat Party has proposed a new tax on property worth £1 million or more.
Proceeds from the annual 0.5% levy would be used to help 300,000 people on low incomes, Vince Cable, deputy leader and shadow chancellor, said in his speech at the annual party conference in Bournemouth today.
The tax would only apply to the value of a property above £1 million. So, if such a measure were to be adopted, owners of a £1.5 million property would face paying £2,500 extra tax a year – or 0.5% on £500,000. A property worth £2 million, meanwhile, would pay tax under the scheme of £5,000.
It is estimated that around 250,000 homeowners, mainly in the South East, would be hit by such a tax. The average owner affected would pay £4,000 each year.
But Chris Doyle, chairman of the taxation panel at the Royal Institute of Chartered Surveyors, questions how the new tax would work in practice.
"[Potential problems] include the need to ensure that valuations are fair and accurate, given that the last valuations were done 18 years ago; the cost of administration given the likely number of appeals; the ability to pay, since the proposed tax is based on the value of the property and not the owners income; and the potential market distortion such a tax would create," he explains.
During his speech, Cable said the Liberal Democrat Party’s top priority is “fairer taxes for those on lower and middle incomes”.
However, Douglas McWilliams, chief executive of the Centre for Economics and Business Research, warns that such a tax would affect the entire housing market and damage house prices.
Someone looking to buy a £2 million family home, for example, would have to take into account the £5,000 annual tax, adding up to £100,000 after 20 years.
“The impact would trickle down the entire housing market, though with diminishing effect,” says McWilliams. “On our calculations it would reduce the average residential property price by £2,000.”
He ads: “The tax would add to council tax and stamp duty as yet another heavy tax on homeowners. It would be regionally unfair, since virtually the entire tax would be raised in London and the South East.”
As well as taxing million pound-property owners, Cable also proposed lifting the income tax threshold to £10,000. This, he said, would mean four million low-paid workers and pensioners would no longer have to pay any tax on their income.
Such a move would be paid for by closing tax loopholes and the “privileges” currently enjoyed by high earners.
Cable pointed to “the big differential between top-rate income and capital gains tax; the exceptionally generous tax relief on large pension pots; and the blatant abuse of tax haven status including businesses paying stamp duty offshore”.
Unemployment is another top concern for the Liberal Democrat Party, with Cable calling for urgent action to help people who have lost their jobs during the recession.
“The unemployed must be found productive work,” Cable said in his speech. “We should learn from the experience of Scandinavia and other countries where the alternative to long-term unemployment is a guarantee – and a requirement – to work, or for young people to train or study.”
A hugely unpopular tax paid on property and share purchases. Stamp duty on property is levied at 1% for purchases over £125,000 (£250,000 for first-time buyers) which then moves up at a tiered rate. For property between £125k and £250k you pay 1%, then 3% from £250k up to £500k and then 4% from £500k to £1m and then 5% for properties over £1m. But unlike income tax, which is “tiered” and different rates kick in at different levels, stamp duty is a “slab” tax where you pay the rate on the whole purchase price of the property. On shares, stamp duty is charged at a flat rate of 0.5% on all share purchases. Figures correct as of May 2011.
The practice of locating your financial affairs (banking, savings, investments) in a country other than the one you’re a citizen of, usually a low-tax jurisdiction. The appeal of offshore is it offers the potential for tax efficiency, the convenience of easy international access and a safe haven for your money. However, offshore is governed by complex, ever-changing rules (such as 2005’s European Union Savings Directive) and, as such, is the exclusive province of the wealthy and high-net-worth individuals.
Capital gains tax
If you buy an asset – shares, a second home, arts and antiques – and then sell it at a later date and make a profit, that profit could be subject to CGT. You don’t pay CGT on selling your main home (which is why MPs “flipped” theirs so regularly) or any securities sheltered in an ISA. Individuals get an annual CGT allowance (£10,600 in 2010/2011) but if you have substantial assets it’s worth paying an accountant to sort it for you.