George Osborne is to defy calls for the removal of the 50p upper rate on income tax and will instead instigate a clampdown on wealthy homeowners in an attempt to demonstrate that the rich cannot avoid Britain’s austerity programme.
The chancellor will target people who avoid paying stamp duty when buying a home and is considering a more extensive tax raid on wealthy owners of central London homes.
Among ideas being discussed by Tories is a change in the rule that means non-UK residents are exempt from capital gains tax. Mr Osborne’s aides are also still considering a higher council tax band to hit the most affluent homeowners.
In a letter to the Daily Telegraph on Thursday, 500 entrepreneurs called on Mr Osborne to drop the 50p top rate of income tax as it was a brake on business growth expansion and put wealth creators in a “very awkward position”.
Mr Osborne will announce the results of a study into the impact of the 50p rate, first introduced by Gordon Brown in 2010, amid concerns that it has not raised much extra money because of increased tax avoidance.
However, he is expected to say that further examination is needed of the issue and may launch a fresh consultation into the rate.
“The 50p rate isn’t going anywhere any time soon,” said one coalition aide. The Tories and Liberal Democrats both realise that giving a tax break to the richest layer of society – at a time of widespread “austerity” – would be politically toxic.
David Cameron, prime minister, last year insisted that it was “fair” and that the UK’s “broadest backs [should] bear the biggest burden”.
Instead of alleviating the pressure on the wealthy, Mr Osborne is instead expected to do the opposite – making a populist swoop on rich London homeowners by cracking down on stamp duty avoidance.
Some property agents suggest that more than a quarter of expensive houses are bought “off-market”, many using specially formed offshore companies which allow them to escape the duty – paid at 5 per cent on homes worth more than £1m.
It is estimated that most of the expensive flats at One Hyde Park, popular with global billionaires, were sold in a way that avoided stamp duty.
Another option, being pushed hard by Tory MP Mark Reckless, is to stop the exemption for non-
residents on capital gains tax when they sell their homes. Some 40 per cent of recent sales of high-end properties in “prime” central London are to foreigners, according to estate agents.
“The number of non-resident owners of these homes has rocketed recently. They should pay a withholding tax at 28 per cent just like everyone else’s CGT,” Mr Reckless told the FT.
Senior Treasury figures have also considered a higher band of council tax which would fall on the most wealthy homes, although there are concerns over whether this would involve a huge revaluation – which Eric Pickles, communities secretary, has ruled out. Other options could include a new band of stamp duty for the most expensive millionaire’s abodes.
“We’re very determined that this will focus on the most expensive properties, in central London, Belgravia, Chelsea, that kind of thing,” said a senior coalition source.
The debate occurs as some Tories have warmed to the idea – usually pushed most strongly by the Lib Dems – of taxing wealth rather than income. Until recently it was the Lib Dems pushing the idea of a “mansion tax” or extending CGT to primary residences worth more than £1m. At present CGT is only paid on the sale of second homes.
“There is a lot of opposition from Conservative commentators and MPs who are hostile to wealth taxes but their arguments are largely self-interested,” said Tim Montgomerie, editor of the grassroots website ConservativeHome.