The party’s treasury spokesman Vince Cable said that the new property tax would raise more than £1 billion that would be used to raise the income tax threshold in the country to £10,000.
However, many in the property industry believe that real estate taxes should be based on ability to pay.
They point out that elderly people living in larger houses will be hard pressed and also the tax will be heavier on those living in London and the south east of the country where property prices are higher.
But his response to such sentiments may not have won him much support. He explained that the tax, dubbed ‘the mansion tax’, could be rolled over from year to year and then taken from someone’s estate after death. But critics claim that would turn the new property tax into an inheritance tax.
He also suggested that owners of large houses with low incomes should mortgage their homes to pay the tax. ‘There are equity release schemes and that is a way you can turn your wealth into income,’ he said.
There also appear to be several holes in the plan which Cable struggled to explain. He was unable to say, for example, how many properties would be affected.
The announcement also represents a big change in policy. The party, which is in third place in British politics, has consistently opposed property taxes, arguing instead in favour of a local income tax.
The Royal Institution of Chartered Surveyors warned that it is now a very practical way to raise revenue from property ownership.
‘Although taxes on properties over £1 million may be an effective way to raise additional funds, RICS sees a number of practical problems in implementing the proposals and potential consequences which will need to be carefully thought through,’ said Chris Doyle, the Chairman of the RICS Taxation Panel.
‘These 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.
A lack of information also means it is not straightforward to even estimate the potential revenues from, and benefits of, the scheme,’ he added.
The new tax would be 0.5% of the property’s value and would mean that owners of a £1.5 million home would pay an extra £2,500 a year in tax. For a £4 million property, the figure would go up to £15,000.
