The Liberal Democrat Party has revised its planned mansion tax to target owners of £2 million plus properties.
Deputy leader Vince Cable unveiled plans to introduce a new tax on property worth £1 million or more at the annual party conference in Bournemouth in September. Proceeds from the annual 0.5% levy would be used to help 300,000 people on low incomes.
However, Liberal Democrat leader Nick Clegg has now pledged to only tax properties worth £2 million or more – and increased the levy to 1%.
His party will also raise the income tax threshold to £10,000 – a move Clegg says will put £700 back into the pockets of the vast majority of taxpayers and take millions out of having to pay income tax at all.
However, millions of top-rate taxpayers will be hit by a Liberal Democrat government, as the party plans to scrap tax relief on pension contributions made at the higher rate of tax.
“Under our plans people won’t pay a penny on the first £10,000 they earn,” says Clegg. “It is right to ask those with the broadest shoulders to bear a little more of the burden so that millions of people on normal earnings get the break they desperately need.”
When the so-called mansion tax was first unveiled, critics pointed out that it would affect the entire housing market and damage house prices across the board.
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.
And increasing the threshold to £2 million could still cause problems, says Gillian Charlesworth, director of external affairs at the Royal Institution of Chartered Surveyors.
"Any tax needs to be based on accurate information about who is affected and how much they will be expected to pay,” she says. “This must include accurate valuation data, given that the last valuations were done 18 years ago.”
Charlesworth also argues that the ability of homeowners to pay the tax should be taken into account, as the planned tax is on asset value not income.