Nick Clegg defends Lib Dem mansion tax plan

House in Kensington Palace Gardens The Liberal Democrats want to levy an annual 1% charge on all properties worth over £2m

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Nick Clegg has defended Lib Dem plans for a mansion tax after an angry homeowner said the tax could force his family out of their home.

John from London rang Mr Clegg's LBC radio phone-in show to complain about the plan to tax homes worth over £2m.

He said his house, bought more than 20 years ago, had "sky rocketed" in value, leaving him liable for the tax despite earning a modest salary.

Mr Clegg said "asset rich" homeowners with low incomes could defer payment.

The idea of a mansion tax was first proposed by the Lib Dems before the last election, but Conservative opposition to the move meant the policy was not adopted by the coalition government.

The Lib Dems want an annual levy of 1% to be charged on the value of the homes above £2m and are considering extending the policy to cover other properties, including second homes.

Last week, Labour came out in support of a mansion tax, the proceeds of which the party would use to fund a return of the 10p starting rate of tax, scrapped by Gordon Brown in 2008.

'78% tax rate'

On his weekly LBC phone-in show Mr Clegg received a call from a man called John from St John's Wood in north-west London who said he would be unable to stay in his home if the mansion tax was introduced.

Start Quote

I think to ask a small contribution from people in multi-million pound homes in order to provide help for people on ordinary incomes is a good thing”

End Quote Nick Clegg Deputy Prime Minister

Since he bought his house over 20 years ago its value had "sky rocketed" to £5m, he said, and he would be unable to pay the tax bill that would be owed on the property.

"I work hard. I earn a reasonable salary. I do not earn as much as Mr Clegg, but I'm happy with what I earn, but no way could I afford to buy a house now for anything like £5m," he said.

"Now, the mansion tax would mean I would have to pay an extra £30,000 a year tax, being 1% on the difference over £2m. This would take my total tax rate to 78%.

"So my only option would be to sell the house that my family and I have lived in for 20 years and to withdraw my children from school."

However, Mr Clegg strongly defended the plan, suggesting that if John sold his property he would be much wealthier than those who had not benefitted from escalating house prices.

"Because you paid very little for it - how can I put this? I'm obviously not urging you on selling your home but if you were, as your children get older and so on, to decide to sell your home, you would be millions of pounds better off because you've got a small mortgage from 20 years ago and that is in a sense, pure profit," he said.

'Belt tightening'

Mr Clegg argued that the "underlying issue" which could not be "ducked" was that properties worth tens of millions of pounds were paying the same council tax as ordinary family homes.

"The way in way in which we asked people who have got very large, unearned assets to how that's reflected in the tax system is very very odd and uneven," he said.

"I think the question is when we as a country are having to tighten our belts for many many more years into the future... who tightens their belt first? I think to ask a small contribution from people in multi-million pound homes in order to provide help for people on ordinary incomes is a good thing."

But Mr Clegg suggested that those in John's position, who were "asset rich" but living on low daily incomes, like pensioners, might be able to defer payment until after they died when it could be charged to their estate.

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