Page last updated at 14:03 GMT, Monday, 30 November 2009

Liberal Democrats double planned mansion tax threshold

Nick Clegg: "Our tax plan is simple, it is do-able, but above all it is fair"

The Liberal Democrats have doubled the threshold at which they say homeowners should pay an annual "mansion tax".

Properties will now have to be worth at least £2m to incur a 1% charge - the previous plan was to charge 0.5% a year on a property's value above £1m.

The party is also pledging to raise tax thresholds to £10,000 a year, taking four million people out of income tax.

Party leader Nick Clegg said the plans "would put £700 back in the pockets of the vast majority of taxpayers".

But four million top-rate taxpayers would lose out as they will no longer be able to claim tax relief on their pension contributions at the higher rate.

Mr Clegg said tax would be "one of the key dividing lines" between the parties at the next general election - and the Lib Dem proposals were "fairer" because they helped the poor and ensured the "very rich" paid more.

'Not a U-turn'

He insisted the party had not been forced to do a U-turn on the mansion tax policy after complaints from Lib Dem MPs in marginal constituencies in the South of England, who feared it would harm their chance of re-election.

"It is not a U-turn. A U-turn would be abandoning the policy," said Mr Clegg.

No income tax paid on first £10,000 earned
Tax relief on high value pensions reduced
1% annual 'mansion tax' on a property's value above £2m
Tax loopholes closed
10% temporary tax on bank profits
More green taxes

Instead, he said the party leadership had "looked in more detail" at property values before deciding that a tax aimed at the owners of "very high value properties" should be levied at £2m.

"We don't want family homes caught up in local property bubbles to be hit. We want to ensure that only the very wealthy pay this tax - pay their fare share so that we can offer tax cuts for everybody else," said Mr Clegg.

He said the £2m mansion tax "does what it says on the tin" and would generate more money than the original £1m proposal, as it was a 1% annual levy.

The £1.7bn raised would help pay for tax cuts for low-paid workers - making the Lib Dem proposals the fairest of the three main parties, he added.

He said: "Our plans represent the most radical, far-reaching tax reform in a generation.

"They embody everything the Liberal Democrats stand for: fairness, protecting the environment, rewarding hard work.

"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."

He said the tax package was not about "envy", it was about fairness and boosting "enterprise and initiative" by ensuring the low-paid did not pay a greater share of their income tax than the wealthy.

"Why should not those at the top chip in more to help out?," asked the Lib Dem leader, adding: "Our tax plan is simple, it is doable but above all it is fair."


Treasury spokesman Vince Cable confirmed that the party's next election manifesto would also include a temporary 10% tax on bank profits and green taxes to penalise polluters, as well as proposed crackdown on tax loopholes.

When one set of Lib Dem tax plans fall apart under scrutiny, they produce another set - nobody takes them very seriously
Caroline Spelman, shadow local government secretary

Mr Cable unveiled the mansion tax proposal at the Lib Dem annual conference in September.

The plan would have seen people having to pay 0.5% of the value of their property above £1m each year - so someone with a house worth £1.5m would have had to pay 0.5% of £500,000, which is £2,500.

But it prompted an angry reaction from senior Lib Dem MPs, including members of the frontbench team, who said they had not been consulted.

Many in the party said they feared it could damage their election prospects in London and the south of England, where property prices are highest, and would penalise poorer pensioners living in large properties.

The change will see the property price threshold raised, so that the charge only applies on the value of a property above the £2m mark.

So, for instance, it would be payable on £500,000 of a £2.5m home.

It would mean a person living in a house worth £2.5m paying £5,000 a year in tax.

But someone with a home worth £1.9m would now pay nothing, whereas they would have faced an annual charge of £4,500 under the original mansion tax plans.

The new proposals would affect 70-80,000 properties, compared with about 240,000 under the original policy.

Commenting on the Lib Dem proposals, shadow local government secretary Caroline Spelman said: "When one set of Lib Dem tax plans fall apart under scrutiny, they produce another set. Nobody takes them very seriously.

"Liberal Democrats offer the worst of both worlds - a local income tax which would punish hard working families and a property tax mired in confusion."

For Labour Sarah McCarthy-Fry said: "Their mansion tax muddle is typical of the Lib Dems. Because they are trying to face both ways, their plans keep falling apart.

"They've made a complete mess of costing their proposals. The only thing that is consistent is that their sums don't add up."

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