Clegg warns of new tax changes
Wealthy foreigners who have forced up house prices in London by investing in property in the capital look set to be hit by millions of pounds of new taxes in next month's Autumn Statement, Deputy Prime Minister Nick Clegg has signalled.
Mr Clegg confirmed that discussions are under way within Government on introducing capital gains tax (CGT) on non-UK based real estate owners, though he stressed that no decisions have yet been taken.
The Liberal Democrat leader also said he would be entering negotiations with Conservative coalition partners over his plan for what he termed a "workers' bonus", lifting all earnings under £10,500 out of income tax, which he wants to see introduced in next year's Budget.
But Mr Clegg's proposal for an increase in the basic-rate income tax threshold - worth £100 a year to low and middle-income workers - faces competition from right-wing Tory MPs, who are calling on Chancellor George Osborne to target any tax cuts which he can afford on the middle class.
The Free Enterprise Group of MPs is proposing a £15.79 billion package of tax cuts, including scrapping stamp duty on house sales up to £500,000, raising the earnings threshold for higher-rate income tax to £50,000 a year and freezing business rates for three years.
At his monthly press conference in Whitehall, Mr Clegg blamed Conservative "prejudice" for holding back proposals to increase taxes on high-value property - such as the Liberal Democrat's favoured "mansion tax" of 1% on the value of homes worth £2 million or more.
He made clear that he backs the option, being considered by the Treasury for inclusion in the December 5 Autumn Statement, of imposing CGT of 28% on the sale of second homes in the UK that are owned by overseas investors. The new policy is designed to address concerns that a price bubble is being created by foreign buyers from countries such as Russia and Greece who regard luxury flats and houses in London and the South East as a safe investment producing healthy returns, and often leave them empty after purchase.
Mr Clegg said: "There are parts of the London property market now which are entirely divorced from and dislocated from the rest of the economy - certainly London's economy and even more from the rest of the nation's economy. That is party because they are driven by market forces which are global and by very, very large amounts of money flowing into the residential property market as an investment.
"We are an open economy and we don't want to pull up the drawbridge - that would be bad for the country.
"But we certainly want to make sure that people who invest very large amounts of money into properties in central London locations - which more often than not then stand empty - pay their fair share of tax on those transactions.
"That's why we are looking at options like the differential application of capital gains tax to those kinds of transactions. Decisions on that haven't yet been made."
Mr Clegg insisted that any changes in CGT should not be seen as a "surrogate" for the mansion tax, which is now also backed by Labour but has been blocked by Conservative members of the coalition.
And he indicated that Lib Dems would be ready to consider alternative methods of shifting the burden of tax away from earnings and on to wealth, such as the introduction of new higher-rate bands of council tax to cover more expensive properties. Under current rules, all properties in England valued at more than £320,000 are placed in the same band.
Mr Clegg asked: "Does anyone really think that it is either rational or reasonable that under our council tax system - which is a tax on property - if you live in a family home worth £700,000 in Lewisham, you are paying the same council tax as an oligarch in a £14 million mansion? Why should a family in Lewisham pay the same council tax as someone in a vast palace worth several million pounds?
"There is nothing irrational about saying that for those very high end properties for which there isn't any progressive treatment in the tax system, we should look at doing so. We have our own proposal of a mansion tax, a small levy on properties of £2 million. An alternative way of doing a similar thing would be to put in extra council tax bands.
"We have a significant amount of property taxes, but - for reasons of history and accident and, frankly, downright prejudice on the part of my Conservative colleagues who simply don't want to ask people in very high-value properties to pay a bit extra - we are saying to hard-pressed families `You have to pay a property tax but someone in a multi-million pound mansion down the road doesn't'. That strikes me as unfair and I think it strikes most British people as unfair."
Liberal Democrats are expected to promise in their manifesto for the 2015 general election that they would lift the income tax threshold so that anyone on the national minimum wage - currently around £12,500 - would be lifted out of tax altogether.
But Mr Clegg said yesterday that he would like to see the threshold - currently £9,440 and due to rise to £10,000 next April - increased to £10,500 ahead of the election.
He said: "That is something I will now set out to negotiate with my coalition partners. I very much hope it is something we can achieve, because as the recovery takes hold I think it is important that we in Government should do all we can to make sure that the largest number of people benefit from that recovery.
"It is a workers' bonus in order to make sure that people, as they face high increases in their weekly and monthly household budgets also feel that the Government is doing more to help them."