Clegg: Hit the rich with a new tax on big homes

Wealthy must pay more, says Lib Dem leader as he reveals plans for annual property levy

Nick Clegg is turning his fire on the super-rich, revealing proposals to hit owners of million-pound houses in the pocket under Liberal Democrat plans to overhaul the tax system.

In an interview with The Independent, he argued that the wealthiest in society had profited from soaring property prices and tax dodges. His solution is to make them pay their fair share, promising that the extra cash collected would be channelled back into tax cuts for low- and middle-income homes.

Under the scheme, to be detailed at the Lib Dem conference in Bourne-mouth today, £17.1bn a year would be raised by cutting reliefs that benefit the best-off. The cash would be used to raise the basic starting-point for income tax to earnings of £10,000 a year, removing four million workers from tax altogether.

The plans will be unveiled by Vince Cable, the Treasury spokesman. The boldest element is an annual levy of .5 per cent on a property's value above a threshold of £1m. This would mean additional tax of £2,500 a year on a home valued at £1.5m, or £15,000 a year on a house worth £4m.

"That is not a big sacrifice," said Mr Clegg. "It is a perfectly reasonable thing to ask of people who have got properties of that value, and it's completely in line with how pretty well every tax system in the world works." It was only just, he added, to require the people who had benefited most from the "rollercoaster of housing prices" to contribute a small fraction of the profits they had made.

"I think people who live in properties worth over £1m feel it's fair, in this day and age, to pay about £2,000 or less to help people for whom the tax burden is much higher."

The tax would hit hard in parts of London and the South-east, where property prices remain highest. The cash would be collected by local councils, with some £1.1bn raised from the estimated 250,000 properties worth £1m-plus that would be covered by the tax.

The Lib Dems are also calling for closing of the loophole that allows highest earners to dodge tax by paying themselves in shares. A tightening of the rules on capital gains tax aimed at the richest in society would raise £4.1bn more. Wealthy individuals who take some of their income as capital – typically City traders who are awarded shares – would be taxed at 40 per cent rather than the present 18 per cent.

The annual exemption for capital gains would be also cut from £10,000, a level which the Lib Dems say allows the best-off to move money around to avoid tax, to just £2,000. The party would levy national insurance on company "benefits in kind" paid to high-earners, such as private medical insurance or company cars, at present exempt from NI. "The captains of the universe in the City of London who have been raking in incomes through capital gains won't like this," said Mr Clegg. "But it's wrong, just morally wrong, that millions of people on lower incomes are subsidising people on high incomes."

The party leadership will also set out detailed plans to save £2.8bn a year from tackling schemes used by big business to avoid tax. It will include action against companies that set up complex corporate structures to side-step tax.

Mr Clegg insisted the moves were driven by a desire to tackle unfairness in the heart of the tax system. He said: "I actually think we have got a new mood which is not a punitive squeeze-the-pips-until-they-leave-the-country 1970s style, absolutely not.

"We celebrate success, we celebrate and support entrepreneurialism, people doing well, earning money. I have no problem with that. But I think everybody now in Britain recognises that one of the things that went wrong in the get-rich-quick, spend-today-don't care about tomorrow society that Labour presided over the last decade was that we didn't make Britain fair enough."

Mr Clegg said that, with a maximum of nine months to go to the next election, the party was more united and optimistic than for years. "I think the party senses that the next election isn't going to be just any old election. It's a very big election. I think people feel failed by Labour – that much is obvious – but they feel wholly unconvinced by this plastic, synthetic appeal from the Conservatives."