Rich foreigners targeted for property tax
Ministers are drawing up plans to target wealthy foreign property owners in a tax raid aimed at helping to pay for coalition giveaways including free school meals and a tax break for married couples. Nick Clegg on Monday became the first senior minister to admit the coalition was thinking of imposing capital gains tax on sales of British houses by foreign owners. Speaking at his monthly press conference, the deputy prime minister said: "We certainly need to make sure that people who invest very large amounts of money into property in central London locations . . . pay their fair share of tax on those transactions. "That is why we are looking at options like a differential application of capital gains tax to those kind of transactions." Britons pay capital gains tax – typically at 28 per cent – on any profit from selling property that is not considered their primary residence. Foreign property investors are currently exempt. Ministers have been looking for ways to target the high-end London property market, which has risen sharply in recent months, supported by waves of money from wealthy foreign buyers looking for secure assets. More than £7bn of international cash was spent on prime London homes last year, according to Savills, the estate agent. Meanwhile figures from the Nationwide show London prices have risen by 10 per cent year on year. George Osborne, the chancellor, has previously balked at imposing CGT on foreign property owners, which would bring their taxation in line with domestic sellers, because of worries that it might deter investors from coming to the UK. However, the Treasury has been encouraged by the way in which the London property market has continued to grow even after Mr Osborne imposed a new 7 per cent top rate of stamp duty on homes worth more than £2m. A senior coalition adviser said: "There are several ways to raise taxes on wealthy properties, but this is the only one under consideration at the moment." The government is looking for ways to fund giveaways to be announced in next month’s Autumn Statement, including an extension of free school meals to all infants and a tax break for married couples, costing about £600m a year each. The CGT plan would come nowhere near paying for these two policies, however, and is expected to raise only a little more than £10m a year, according to Treasury officials. But it would go some way to fulfilling the Liberal Democrat desire to shift the burden of taxation from income to wealth. As part of that shift, the Lib Dems have also called for the threshold for income tax to be raised from £10,000 to £10,500 in 2015 at a cost of £1bn. That idea has come under attack from backbench Conservative MPs who want to see tax breaks aimed at higher earners. Dominic Raab, the Tory backbencher, argued in The Times on Monday that ministers should raise the threshold for those paying higher-rate income tax, currently £34,371, rather than following Mr Clegg’s plan of raising the lower rate. He said: "Unlike the lowest paid, the middle classes face a rising tax burden." Mr Clegg was scathing in his response to Mr Raab on Monday, telling reporters: "It is simply not right to suggest [the increase in the minimum threshold] doesn’t benefit so-called middle-income earners . . . Over 20m taxpayers are benefiting from this." Mr Osborne, meanwhile, will be keen to shut down the row between coalition partners over possible future tax cuts. The chancellor fears that if Tory MPs suggest tax cuts are on the horizon, it will send a message to voters that the economic clouds are lifting – thus making it safer for them to make a change to Labour.