LibDems press for CGT on £1m first homes as 50p tax alternative
Share
The Liberal Democrats are pushing for capital gains tax to be levied on the sale of first homes worth over £1m after acknowledging they will lose the battle to retain the 50p highest rate of income tax, reports the Financial Times.
Chancellor George Osborne has signalled that he is looking to scrap the 50p rate, which affects incomes over £150,000, as soon as practicable. The Treasury is currently undertaking work on how much extra revenue is raised through the tax with fears that it is being widely avoided.
Earlier this month, Treasury Chief Secretary Danny Alexander said those calling for the 50p rate to be removed were “living in cloud cuckoo land”, although LibDems now accept that it will be scrapped, according to the report.
The FT says Business Secretary Vince Cable will be pushing for the introduction of CGT, currently levied at 28 per cent, on profits from the sale of first homes above a £1m threshold as an alternative. At present CGT only applies to the sale of second homes.
The paper says the “son of mansion tax” is being opposed by former LibDem Treasury Chief Secretary David Laws, although party insiders say he is isolated on the issue.
The LibDems are also likely to push for the lowest income tax threshold to be increased to £10,000 before any tax cuts for the wealthy are introduced.
Earlier this month, it was reported the Government was considering lowering the 50p rate of tax to 45p. The Independent quoted a senior Conservative source as saying: “The decision is not about whether to do it - it is about when to do it. One option is 2012, depending on the economy, or 2013 at the latest. We want it to have come into effect by the next general election.”
Elsewhere, Osborne and Cable are in dispute over the timetable for bringing into force the ringfencing of Britain’s retail banking operations, the Financial Times reports. The paper says Osborne is prepared to endorse plans for strict ringfencing but wants to give banks longer, perhaps until 2019, to implement the reforms, whilst Cable is pushing for an earlier introduction.
If you enjoyed this article, sign up here to receive daily email updates from Money Marketing and Follow @_moneymarketing
View results 10 per page | 20 per page
Readers' comments (19)
Mike Fenwick | 15 Aug 2011 9:28 am
Interesting comparison drawn from a recent article inthe New York Times by no less than Warren Buffett.
Entitled " Stop Coddling the Super-Rich", this is an extract:
"Last year my federal tax bill — the income tax I paid, as well as payroll taxes paid by me and on my behalf — was $6,938,744. That sounds like a lot of money. But what I paid was only 17.4 percent of my taxable income — and that’s actually a lower percentage than was paid by any of the other 20 people in our office. Their tax burdens ranged from 33 percent to 41 percent and averaged 36 percent."
If, as he suggests, you can choose which "form of tax" is payable or avoided, it can have a greater impact on what tax you eventually pay than a headline "rate of tax".
Unsuitable or offensive? Report this comment
Anonymous | 15 Aug 2011 9:47 am
That's a recipe for killing off the housing market in swathes of London and South East England. Coming on top of an already punitive 5% stamp duty for properties over £1 million, you will need to make a significant capital return on a property to move home without being out of pocket. Sometimes people do need to move home - for example because of a job change or marital break-up.
The effect of this crass proposal would be particularly damaging for those people planning to down size to release cash to live off in their retirement.
And we all know that super rich will just find a loop hole to avoid this, like buying through an offshore company.
It'll be middle class taxpayers who'll' pay the the price of this ill-thought envy tax.
Unsuitable or offensive? Report this comment
Peter Herd | 15 Aug 2011 10:04 am
This New York Times article is obviously missing the point as Warren Buffett was not advocating lower taxes for the super rich. I saw the original interview for one of the US news channels, which was done in Davos and he was very much advocating higher taxes for the super rich, as he believes it is unfair that his employees pay less tax rate than he does. Warren Buffett is one of those very rare individuals, who believes in fairness within society and is also one of the biggest givers to charities of all times, even bigger then Bill Gates.
Unsuitable or offensive? Report this comment
Peter Herd | 15 Aug 2011 10:11 am
To Anonymous
Stamp duty is paid on the purchase of a house, whereas capital gains tax is only paid if house price goes up in value. This may be an interesting proposal to try and stem future house price bubbles particularly in London where you get overseas investors buying into the market purely as a way of speculating.
Although we may not like it we do have to look at ways of trying to control future house prices, as we don't need to see another banking crisis caused by too much lending into the residential housing market, causing a lending based bubble as per 1997 to 2007, particularly when that lending is based around speculation rather than need.
Unsuitable or offensive? Report this comment
Andrew Nicholas | 15 Aug 2011 10:13 am
I totally agree with "anonymous" above. This is classic Cable politics of envy. It has always been a fundamental right in this country that your home is free of CGT. This should always apply to everyone.
In any case, it would be totally unfair in that anyone who bought a house 30 years ago for £100k which they are now selling for £1.1M would have a vast tax bill. Someone who owns the same house but moved up the housing ladder 10 times over that period would have a house they bought for £1.1m an no tax liability at all.
Typical Cable petty minded jealousy.
Unsuitable or offensive? Report this comment
David Chambers | 15 Aug 2011 11:09 am
CGT as proposed above makes good sense. It is the lack of an effective CGT regime that has contributed to inflated housing prices in the last 20 years. As UK goes through a period of housing adjustment we should expect housing to normalise to more affordable prices and not expect "make me rich" house inflation ever again. Introduction of an effective CGT is part of that and simply catches UK up with other progressive economies. Personally I would lower the thresh-hold a little more than suggested.
More to the point however, I note how this Government is chasing down the less well off and the poor with cuts to benefits, allowances, council social initiatives funding, education and health services and social support structures across the poor end of the spectrum, while proposing to delay banking reform (give the poor wee Bankers a chance to self-regulate says George), backing off from bonus regulation and intervention, seeking to reduce tax for the top 2% in the country and bringing in punitive changes that ONLY hit the less well off. These Victorian Tory policies are divisive, embedded in an ethos of class difference (UK is the only OECD country that still obsesses about 'class' ) and are causing long term damage to our social, health and education services....unless of course you are in the political or upper class!
Just a PoV mind you.
Unsuitable or offensive? Report this comment
huw | 15 Aug 2011 11:29 am
Ludicrous policy from a fantasist who has suddenly found himself with some power. There is a hidden bonus however. Nic Cicutti shared with us some months ago that his house is worth more than an million, so it will at least slap him round the head with a large dead cod when he comes to sell.
Always liked that Cable chap.
Unsuitable or offensive? Report this comment
Martin Sans | 15 Aug 2011 11:40 am
It won't prevent a house price bubble for the reason Peter Herd suggests. This is for the simple reason that overseas investors, provided they are not tax resident in the UK, do not pay capital gains tax in the UK inr espect of UK assets. In fact it might encourage overseas investors to speculate as they will be in a tax advantaged postition when compared to UK resident first home purchasers.
This is also ignoring the fact that UK resident, but non-UK domiciled persons can also avoid CGT on UK assets by the relatively simple structuring of the ownership of those assets.
The proposal is typical of ill thought through Lib Dem tax policies.
Unsuitable or offensive? Report this comment
Harry Katz | 15 Aug 2011 11:59 am
I did say before that I think Vince has lost the plot – now I know he is a Cable short of a Fathom.
1. A £1million house is quite common in large parts of greater London. It doesn’t make the owners rich, nor do they necessarily have incomes over £150k. In many cases they have lived there for a long time, scrimped to have a nice house by forgoing the pub, bingo and fags and now they are set to be penalised for their prudence, while the feckless again seem set to be rewarded.
2. Just bear in mind that there are what may be considered fairly modest houses that would cost £400 - £500k outside London that cost £1million or more inside the M25 (or even just outside it). Vice is probably equating this to Glasgow prices where you can by a castle with grounds for £300k. (12th August - currently on the market in Stobo Peeblesshire: 7 beds, 2 baths, 2 recepts, study, conservatory, stable, paddock, woodland, stream, 4.4 acres - £795,000. So why is that ‘fair’ when something a quarter that size costs over £1million in London?
3. One of the effects of this rather stupid proposal would be to increase property prices elsewhere and make it even harder for those of more modest means to afford a property. It could also have the effect of reducing commercial property values in the good areas as people move out and relocate. Offices may also relocate so that employees can avoid this unjust squeeze. It could possibly even lead to more emigration by the wealthy as they finally get fed up with the UK politics of envy.
4. What of the much vaunted idea of Equity Release?
After the next election it looks like the Lib Dems will be able to save a fortune on their annual conference. Currently they use a telephone box – in future they may utilise a cardboard box.
Unsuitable or offensive? Report this comment
Mike Fenwick | 15 Aug 2011 12:02 pm
@ Peter Herd ... apologies if the sole extract I used gave the wrong impression, perhaps these additional extracts will reverse any such:
"I know well many of the mega-rich and, by and large, they are very decent people. They love America and appreciate the opportunity this country has given them. Many have joined the Giving Pledge, promising to give most of their wealth to philanthropy. Most wouldn’t mind being told to pay more in taxes as well, particularly when so many of their fellow citizens are truly suffering.
I would leave rates for 99.7 percent of taxpayers unchanged and continue the current 2-percentage-point reduction in the employee contribution to the payroll tax. This cut helps the poor and the middle class, who need every break they can get.
But for those making more than $1 million — there were 236,883 such households in 2009 — I would raise rates immediately on taxable income in excess of $1 million, including, of course, dividends and capital gains. And for those who make $10 million or more — there were 8,274 in 2009 — I would suggest an additional increase in rate."
Unsuitable or offensive? Report this comment