INCOME tax for top earners has been cut by the Government after it emerged that the 50p rate raised only a third of the £3bn predicted.
The widely expected cut for earners on more than £150,000 – from 50p to 45p – was offset by a rise in stamp duty on properties worth more than £2m and a commitment to clamp down on “aggressive” tax avoidance.
Overall Chancellor George Osborne said his measures would raise five times more from the wealthy than the top rate introduced by Labour. He said a study by HM Revenue and Customs found that cutting the 50p rate would cost the Exchequer £100m a year – a loss which could be cancelled out by other tax revenues.
However, the move will be part funded by a stamp duty raid that will see a rate of seven per cent on homes costing £2m or more, and a 15 per cent cost to those bought under a “company envelope”.
Estate agents warned the rise in duty could hit all homeowners and buyers by triggering a slowdown in the areas of the property market which have been vital to supporting prices.
The change will mostly affect buyers in London, an area which has been key in supporting the market by recording consistent price growth due to strong overseas buyer interest. Peter Rollings, chief executive of estate agent Marsh and Parsons, said: “Not only will this policy disproportionately target London, where house prices are in a league of their own, it risks killing the goose that lays the golden egg.
“With the property market still far from healthy, we need to see the Government supporting activity at all levels, rather adding yet another tax burden.”
London homes have been vital in keeping average prices up, with the capital often viewed as the most “healthy” and stable area at a time when the housing market generally remains weak and patchy.
Of the 2,834 homes sold in England and Scotland in the last two years for more than £2m, 2,059 were in London; only two were in Yorkshire, according to property website Zoopla.
The Chancellor also announced a crackdown on the practice of “enveloping”, whereby people try to avoid stamp duty by using a company to buy a residential property. The home is then sold on as shares in the company in an attempt to sidestep the duty.
Mr Osborne warned: “If you buy a property in Britain that is used for residential purposes, then we will expect stamp duty to be paid.”
He said that stamp duty on residential properties worth more than £2m which were bought via a company would increase to 15 per cent.