£1 million property faces extra tax

London property

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.”