Reports suggest Labour may introduce capital gains tax on home sales in the Autumn Budget. It sounds like an easy revenue raiser – but the evidence shows it would slash transactions, gum up housing chains, and could even collect less tax overall. With stamp duty already doing huge damage, the last thing we should do is add yet another tax on moving house. Particularly when there are better alternatives.
The current mess – stamp duty
Stamp duty land tax (SDLT)1Apologies to all tax professionals, but I’m going to call SDLT “stamp duty” throughout this article. is a deeply hated tax.
(There are slightly different taxes in Scotland and Wales. The rates are generally higher, so we should expect all of the below to apply to Scotland and Wales, but more so)
If you tax something, you get less of it. Stamp duty taxes property transactions, and so we shouldn’t be surprised that stamp duty reduces property transactions.
It is, however, surprising quite how large this effect – “elasticity” – is. Office for Budgetary Responsibility figures shows that every 1% increase in the effective rate of stamp duty cuts transactions by about:
- 7% for properties under £250k.
- 4.5% for properties between £250k and £1m.
- 6% for properties over £1m.2These are the long run transaction semi-elasticities in the OBR paper.
These are not theoretical figures: they’re measured from a big change in 2014, when the previous “slab” system of stamp duty created big changes in the effective rate of the tax at different price points. The observed effects were twice as big as anticipated.
We can use these figures to estimate the effect of abolishing stamp duty (which is another way of saying: the adverse effect that stamp duty currently has).
- A £200k property pays £1,500 SDLT.3This and the other figures in this article use the standard SDLT rates and ignore all the many potential complications. In particular, I’m ignoring the 2% non-resident premium, the special <£300k rate for first time buyers, and the 5% higher rate for second/subsequent properties. All these factors would tend to increase the effects I discuss. That’s only 0.75% of the purchase price – so abolishing stamp duty would increase transactions in such properties by 5.25%
- A £291k property (the average England house price) pays £4,550 SDLT. That’s 1.6% of the purchase price – so abolishing stamp duty would increase transactions by 7.2%
- A £440k property (an average detached house in England) pays £12,000 SDLT. That’s 2.7% of purchase price. So abolishing stamp duty would increase transactions by 12%.
- A £2m property pays £153,750 stamp duty. That’s 7.7% of purchase price. Abolishing stamp duty would increase transactions in such properties by 46%.
These four examples shouldn’t be regarded as existing in separate universes. The £2m market may feel a world away from the £440k market – but it’s in reality one market, and some house purchase “chains” will include both £2m and £440k houses. If someone at the top of a chain doesn’t sell, nobody else in the chain can complete. So a 46% increase in £2m transactions will facilitate additional £440k transactions, beyond the 12% figure that the £440k calculation above suggests.
Given there were 663,645 residential property sales in England in 2022/23, we are talking about a very large number of transactions being deterred by stamp duty – somewhere over 70,000 each year. Each of these deterred transactions has a cost, in reduced labour mobility, inefficient use of land, and reduced economic growth. We also shouldn’t forget the human cost: being unable to move house makes people miserable. A recent paper finds that the welfare loss of taxes like stamp duty exceeds the revenue they raise.
And the rates are now so high that the top rates raise very little; HMRC believes that increasing the top rate any further would actually result in less tax revenue.
The effects aren’t limited to homeowners. Because SDLT depresses transactions, it reduces the rate at which developers at which developers can sell, therefore delaying their recycling of capital into new housing supply, and tightening the pipeline of new homes.
So there is a powerful case for abolishing stamp duty.
There are, however, two problems.
The obvious problem is that it raises too large a sum to simply be abolished. Any increase in transaction volumes would itself generate tax revenues from other sources (e.g. VAT on estate agent fees) but these effects are much smaller than the cost of the abolishing stamp duty.4We can illustrate this with a back-of-the-napkin calculation. Abolishing stamp duty would result in around 70,000 additional house sales. Estate agent fees on these would be around £300m (70,000 x 1.5% x £285k), with VAT of £60m. There will of course be other effects, but we’re more than two orders of magnitude too small to overcome the cost of abolition.
The deeper problem is that abolishing stamp duty would raise prices. Evidence suggests about 40% of any tax cut would be pushed straight into prices.
CGT – making things worse
The Times and Financial Times suggest the Government is considering imposing capital gains tax at 24% (higher rate taxpayers) or 18% (basic rate) on sales of people’s homes.
It’s obvious why this is attractive to politicians looking for tax revenue – the capital gains tax exemption for main residences is the single largest tax relief, costing £31bn.
However abolishing the relief would be as damaging as stamp duty – perhaps more so.
Imagine someone who bought an average detached house in 2010 for £250k. It’s now worth £440k. They want to move to another house of about the same value – perhaps to take up a job elsewhere, perhaps to join their family. Today there’s stamp duty of £12k – and that’s already a problem. But if CGT applied there would be a gain of £190k and capital gains tax of about5The precise figure depends on their tax band, but most of the sale will be taxed at the higher rate regardless. £45k. For most people that would be unaffordable. The OBR stamp duty figures imply that transaction volumes would fall by over 45% – and this kind of “lock-in” has been observed in other countries.6In practice the impact would likely be worse. Elasticities are often not linear: a large, sudden and well-publicised increase in a tax often has a much greater effect than a simple elasticity calculation would suggest.
So no developed country in the world does this.
Most countries – e.g. France, Germany, Australia, Denmark, Ireland, have a simple exemption, like the UK. Others – e.g. Switzerland, Sweden, let you defer the gain if you’re buying a new residence (so the gain is taxed only if/when you sell a residence without buying a replacement).7The way this works is that, in the above example, there would be no capital gains tax on the purchase of the £440k house, but the new house would “inherit” the old purchase price of £250k. So if the new house was sold for £440k, and not replaced with another residence, the deferred CGT of £45k would be charged.
The US exempts the first $250k of gain ($500k for married couples). Deferral is available for investment properties, and so a common strategy for owners of high value properties is to “convert” their home into an investment property in advance of a sale.
What if we only impose CGT on high value properties?
It might seem politically tempting to adopt some variant of the US approach, so that high value properties are taxed, and others remain exempt. The Times has reported that the Treasury is considering capital gains on sales of over £1.5m.
Introducing a “cliff edge” at which gains start to be taxed would be unfair and highly distortive. And taxing historic gains feels like retrospective taxation (but if the government didn’t do that, and only taxed future gains, revenues would be very small). However, even if we leave these significant points aside, the mathematics of such a tax are challenging.
Take an example where a £2m house is sold at a £750k gain.
Today there is £153,750 of stamp duty (paid by the purchaser) and (in most cases) no capital gains tax for the seller. But imagine that the £750k becomes a taxable gain for the seller:
- The seller would face a £180k CGT liability.
- That’s great – lots of new tax raised!
- But the tax will deter some people from selling. We can conservatively8Conservative because SDLT has two effects: it makes buyers pay less (price elasticity) and deters purchases (transaction elasticity). CGT will only have a transaction effect, so we’d expect the transaction elasticity to be higher than for SDLT. use the OBR SDLT data to quantify this effect. £180k is 9% of the purchase price, and so the OBR figures suggest that would result in a 54%9i.e. 9% x -6.0 drop in transactions (more in the short term).
- So, for each transaction before the CGT change, we’re now seeing 0.46 transactions, generating total tax of £153,525 (i.e. 0.46 x (£153,750 + £180,000)).
So we haven’t raised £180k of new tax at all – we’re taking in £225 less tax.
This is just an illustrative example: if the gain had been smaller then some net tax would have been raised, but the high elasticity and much higher stamp duty means the net tax is always much smaller than one would expect.
For example, if instead of a £750k gain, there was a £10k gain, there would be £2,400 of CGT – but the resultant small (but significant) decline in transactions means the net revenue is about half that figure.10Stamp duty still £153,750, CGT is 0.12% of purchase price, so there’s a 0.72% decline in transactions. 0.72% of £153,750 is £1,107.
And of course if the gain had been larger then there would be a larger loss of net tax revenue. If, instead of a £750k gain, there was a £1m gain, there would be £240,000 of CGT – but a 72% fall in transactions meaning a net revenue loss of £43,500.11Because £240,000 is 12% of £2m, so there’s a 72% fall in transactions, and 72% of £153,750 is £110,700.
It’s counter-intuitive, but the property owners with the largest gain, where one would expect the most tax to be raised, actually cause revenue losses.
There will be second order tax revenue effects (lost VAT on fees for the transaction that is no longer happening) or the wider effects to the property market and economy. As discussed above, some house purchase “chains” will include both £2m and £440k houses. Chains propagate “shocks” across the market; if £2m transactions fall by more than 50%, we should expect the rest of the housing market to be affected.
All of this will be exacerbated by the fact that CGT is wiped-out at death – so people sitting on large gains have a powerful incentive to never sell (their estate will pay IHT either way), further gumming-up the housing market.12Although this will be a significantly smaller effect than stamp duty. Stamp duty defers all transactions. CGT only deters sales at a high gain. It will be exacerbated further if people believe that a future government would change the law – why sell now, if CGT might disappear in two years’ time?
The fundamental point is that, given the high elasticity, adding more tax on property transactions is well past the point of diminishing returns.13That wouldn’t be the case if the tax rate was low, say 5-10%. A small amount of tax could then be raised without adverse effects – but query if raising small amounts in this way is a worthwhile endeavour.
The Treasury know all this. We’re not going to see CGT on our homes.
So what’s the answer?
We could replace stamp duty and council tax with a modern land value tax (LVT) – an annual tax on the undeveloped value of land. Because it’s not a tax on transactions, it doesn’t deter transactions. It would prevent the abolition of stamp duty triggering a rise in prices. It encourages developers to build/sell as quickly as possible. It also has significant economic benefits, which are recognised by economists across the political spectrum: how many other ideas are backed by James Mirrlees, the Institute of Economic Affairs, the Adam Smith Institute, the Institute for Fiscal Studies, the New Economics Foundation, the Resolution Foundation, the Fabian Society, the Centre for Economic Policy Research, and the chief economics correspondent at the FT?
However LVT faces some serious challenges:
- Like any significant tax reform there would be winners (people who expect to move house) and losers (people who don’t). That could make it a hard political sell. The politics may be easier if the reform as a whole was revenue-neutral – but current fiscal pressures mean there is little political appetite for revenue-neutral tax reform.
- There would need to be transitional rules – otherwise people who’d recently paid a large stamp duty bill would feel they were being taxed twice. We could, for example, credit recent stamp duty bills against future land value tax payments.
- The balance between local and national taxation would need to be entirely redrawn.
- And the whole regime would probably need to be phased in, to avoid price shocks.
There have therefore been few attempts to propose a detailed and viable LVT implementation for the UK.
There was, however, a recent very detailed proposal published by by economist Tim Leunig for centre-right think tank Onward. This wasn’t an LVT, but what Mr Leunig calls a “proportional property tax”. It’s a serious and well-thought-out proposal which would (broadly speaking) replace council tax with (on average) a 0.44% annual tax on property value below £500,000, and replace stamp duty with a national levy of 0.54% on property values between £500,000 and £1m, and 0.81% on any value above £1m.
There would, once more, be winners and losers. Mr Leunig is commendably up-front about this, showing the percentage of “winners” in each council tax band:
I fear that telling three-quarters of average households that their annual property tax is going to increase will be a hard political sell. The pain would be eased by making the £500k+ national levy only apply to houses purchased after the tax comes into force – but that has the obvious potential to stall the market in £500k+ houses (and, to be fair, the Onward report acknowledges this issue).
Whilst I applaud the detail and rigour of Mr Leunig’s report, I am doubtful it could be implemented in its current form – but elements of it are well worth detailed consideration. So when The Guardian says that Treasury officials are “drawing on the findings” of the Leunig proposal, that’s promising news.
Photo by Richard Horne on Unsplash
- 1Apologies to all tax professionals, but I’m going to call SDLT “stamp duty” throughout this article.
- 2These are the long run transaction semi-elasticities in the OBR paper.
- 3This and the other figures in this article use the standard SDLT rates and ignore all the many potential complications. In particular, I’m ignoring the 2% non-resident premium, the special <£300k rate for first time buyers, and the 5% higher rate for second/subsequent properties. All these factors would tend to increase the effects I discuss.
- 4We can illustrate this with a back-of-the-napkin calculation. Abolishing stamp duty would result in around 70,000 additional house sales. Estate agent fees on these would be around £300m (70,000 x 1.5% x £285k), with VAT of £60m. There will of course be other effects, but we’re more than two orders of magnitude too small to overcome the cost of abolition.
- 5The precise figure depends on their tax band, but most of the sale will be taxed at the higher rate regardless.
- 6In practice the impact would likely be worse. Elasticities are often not linear: a large, sudden and well-publicised increase in a tax often has a much greater effect than a simple elasticity calculation would suggest.
- 7The way this works is that, in the above example, there would be no capital gains tax on the purchase of the £440k house, but the new house would “inherit” the old purchase price of £250k. So if the new house was sold for £440k, and not replaced with another residence, the deferred CGT of £45k would be charged.
- 8Conservative because SDLT has two effects: it makes buyers pay less (price elasticity) and deters purchases (transaction elasticity). CGT will only have a transaction effect, so we’d expect the transaction elasticity to be higher than for SDLT.
- 9i.e. 9% x -6.0
- 10Stamp duty still £153,750, CGT is 0.12% of purchase price, so there’s a 0.72% decline in transactions. 0.72% of £153,750 is £1,107.
- 11Because £240,000 is 12% of £2m, so there’s a 72% fall in transactions, and 72% of £153,750 is £110,700.
- 12Although this will be a significantly smaller effect than stamp duty. Stamp duty defers all transactions. CGT only deters sales at a high gain.
- 13That wouldn’t be the case if the tax rate was low, say 5-10%. A small amount of tax could then be raised without adverse effects – but query if raising small amounts in this way is a worthwhile endeavour.
39 responses to “Will Labour tax your house sale? Why CGT on homes makes no sense”
OnWard’s proposal to replace the stamp duty would be payable not every year but only after a sale. This would remain a huge incentive to stay put and not to move, so not much would change on that front.
Regardless, it would be yet another tax on London. Most properties outside the M25 would pay very little; but a £1.3m house (the price of a mid-terrace in areas of London’s zone 3 without the tube) would pay more than £5k per year. This would be political suicide for Labour, which has *used to have?) many strongholds in London.
The Leunig proposal would be a huge benefit for those with older flats, whose value has not kept up with their council tax banding. On our £200,000 flat, we would pay only £880 instead of the £2,700 we pay a year.
I would propose scrapping SDLT and replacing it with an inflation adjusted CGT of anywhere between 3 and 5%.
CGT – as has been noted in many places – is mainly a tax on inflation.
Brilliant and thought provoking as usual, thank you. But.
Here we are debating another difficult tax change that will on its own do little to fill the alleged budget deficit. This and all the others floated recently just continue the trend of over complicating the tax system.
Why does the current administration not just increase all income tax rates by 10% (while perhaps dealing with some of the ridiculous cliff edges at the same time) which hopefully would solve the budgetary problem? Yes, it would break a manifesto pledge, but who in their right minds believes any politicians promises.
When we sold our house in Norway, we paid tax on capital gains minus any costs incurred on home improvements – not on general repair and maintenance but we are able to deduct the cost of new kitchen / bathroom installations. Where we had professionals doing electrical / plumbing work, those costs were deductible. For work we had done ourselves, we could deduct the cost of materials. However, everything had to be documented with receipts. But we knew that when we first moved to Norway so religiously documented every expense and retained records. Seems a bit unfair to spring this on UK homeowners unless the CGT will be based on gains from now, rather than from the time of purchase.
No developed country in the world adds sales tax to education, so I doubt that fact will stop Labour!
Many people will not have kept their invoices for capital costs eg extensions.
One option might be to regard housing capital gains tax that is not yet paid as a loan from the government – and one that you pay the government interest on. And the loan can be maintained across house purchases.. So if my house has increased in value by £100,000 since I bought it, and capital gains tax is 20%, at the end of the year, I owe the government interest on the £20,000. This brings in income without preventing moving, and adds a little downwards pressure to prices.
that seems a very complicated and arbitrary way of creating an annual property tax.
It is a somewhat lateral point, but the Chancellor’s first fiscal problem is that her stability rule (current budget in surplus) is at present tested in 2029/30. Any wholesale reform of property taxes would seem unlikely to be in place and delivering (extra) revenue by then unless it were rushed through, with all the risks that implies.
You have definitely convinced me an LVT should replace Council tax and Stamp duty. My fear is politicians will complicate it to try and avoid losers. If Govt uses it as a vehicle for plugging the fiscal deficit there are bound to be losers.
For CGT would it make sense to make the chargeable event death (exemption for spouse). or would that result in lots of sales near end of life for tax reasons.
I can see that any valuation system will lead to anomalies and perceived unfairness but people are at least familiar with a system (council tax) based on (albeit outdated) property values might not a switch to basing the valuation on the undeveloped value of land might be a change which meets more resistance because it is unfamiliar and may well make people more suspicious of its use.
On the Leunig proposals your criticisms are
1. The cliff edges unfair and distortive.
This would not be the first tax to create that particular problem but equally it is not impossible, via some sort of sliding scale, to surmount which could deal with the unfairness and alleviate the distortion.
2. The arithmetic is challenging.
I am not so sure that it is conceptually, or in practical terms, really that difficult. I suspect that dealing with other state financial areas (in taxation & benefits) can be rather more complex and for many individuals, very much more of a challenge.
£1.5m. as the cut off? Never mind revenue issues my guess on this is that the real aim is to reduce opposition to the change on the basis that it is a tax which will only hit the really asset wealthy and that the vast majority of homeowners (though I am definitely not sure what the percentages are) will fall outside the ambit of the tax altogether.
Quite how many homeowners in areas of extremely high property values, but who are not cash rich will see it, or how badly they will be affected by it, is another matter.
I don’t buy that an LVT is difficult to implement. This can easily be done using the existing income tax infrastructure as the Dutch have neatly done. You would just self assess the value of your property on the return (or to your PAYE payroll provider if you don’t file a return) and a notional return on the value is assumed – let’s say 2% p/a for value above £500k. This notional return is added to your taxable income and you just pay income tax at whatever is your marginal rate on this. So for a £600k property this would be £800 of tax per year for a 40% taxpayer or for a £2m property it would be £13,500 per year at 45% but only £6300 if you are a basic rate taxpayer) Has the benefit of being progressive and also cheap and quick to implement and moves away from the obsolete valuation nonsense of council tax. Obvs some people will take the mick onthe valuations but HMRC can spot check. If you don’t want to bother getting a valuation you could just take a conservative position.
We have just paid £38,000 stamp duty to move to a home we intend to live in now until our demise as we are both retiring this year.
Rob P’s suggestion would mean that we pay an extra £7600 tax per annum on top of £3000 council tax on greatly reduced retirement income!
There must be a better, easier way to make tax fairer based on income and wealth.
How about unfreezing income tax thresholds, increasing income tax by 2%pa above £35k (to protect average earners who are already struggling with living costs) and increase inheritance tax substantially.
I don’t buy the conservative shrieks of alarm about inheritance tax being ‘double taxation’ etc. When you’re gone, you’re gone. And surely tax on unearned income (to beneficiaries) is preferable to high taxes on work.
The problem with LVT proposals is that this tax is quite different from many existing taxes and because of that is less vulnerable to many existing avoidance schemes. However, if it was introduced at scale, a lot of effort would go into avoidance and would undoubtedly uncover many ways to avoid it. The main vulnerability would be in the “unimproved” concept.
First of all, it makes it difficult to use recent transaction prices as price guides, as very few transactions in cities are for genuinely unimproved land. Any tax relying on ungrounded expert estimates is rife for abuse.
Secondly, it encourages aggregation of very large land holdings as these internalise land improvements. If one buys an empty plot, builds a road and a sewer, and then sells it in 1000 subplots, each subplot benefits from the presence of the road and the sewer and thus has an increased unimproved value. However, if the plot is not split, the road and sewer count as improvements and thus the whole unimproved plot value should ignore them.
Similarly, unimproved value of a small plot in Canary Wharf is very high because of all the skyscrapers and infrastructure surrounding it. But the unimproved value of Canary Wharf as a whole is relatively low, as it would be just a piece of land surrounded by depressive docks and housing estates.
It’s peripheral to your main argument, but you make an important point about the existence of chains in the UK housing market. Having recently moved house myself and also sold my late parent’s property, I’ve heard many stories of chains that have collapsed because of problems in one of the links. Would it be impossible for the Government to promote a guaranteed-price sale scheme that would offer sellers a realistic fraction of the market value? That would give many people a lot more confidence to engage in transactions.
Chains are a result of a conveyancing system which dates from when “an appropriate home should cost a man about one year’s salary”. You bought your new home, moved in and sold the old one vacant. One ration in the above statement has blown a hole in this. Governments have been hell bent on on pumping the demand side. The barber Boom, Shared Ownership, Osborne’s (again, I’m not obsessed, really) schemes. That’s the last thing we need and what is “realistic”. These are assets no government needs. Sympathy for your problems though. Went through it and did very nicely from a parental home sale.
Re. the Swedish study and lock in effects. This seems to be a rather dated study – not to detract from the findings – from 1998 based on 1995 work. The lock-in effects they identify are most evident in households buying down with greatest impact in high degrees of mismatch. This might be exacerbated by the impact of rollover reliefs which allow the compounding of gains in upward moves which are then due in downward moves. It would be interesting to see wider and more recent studies on these effects.
Really good article, and captures the mobility problem really well. It would lock the older population into their homes and glue up the housing market, just at the time when they should be considering a move from the largely unused 4 bed to that charming [insert own preference].
There are considerations beyond the efficiency of the housing market which need to be considered in assessing the worth of the application of a CGT rate to the primary residence.
The lack of CGT makes housing the most attractive asset class for retail investment in the UK.
Housing is, in general, illiquid, non-fractional and highly leveraged.
This makes it an unsuitable store of wealth for the majority of retail investors (albeit an attractive one from a CGT perspective).
Were its tax treatment equalised it is reasonable to surmise that investment in other asset classes would increase. The relationship is likely non-linear because of the distortive effects of transactions costs (SDLT et. al). From a policy perspective it seems more attractive to encourage investment in liquid securities which are readily realisable and generally unlevered.
CGT is also a perceptibly fairer tax vs. SDLT (tax on gain vs transaction value). LVTs appear more complex when assets are purchased out of already taxed income.
So now when we will all have to sell homes to pay inheritance tax we will face another tax bill if they do this! What is the point to working hard and looking after yourself and your family?
It would be a lot simpler to have a straight property value tax without the £500k threshold. Does the extra tax on the more expensive properties justify the distortion?
The position is probably worse. For those downsizing to release money from property for retirement a clear alternative to sale is equity release – raises cash with none of the tax. Of course there is the interest to pay – on death, which would reduce inheritance tax or leave less to pay capital gains tax i(or care home fees) if the reason for repayment is a move into a care home – also resulting in the State having to pick up a bigger tab for care. So less tax and larger houses even more clogged up than even your numbers suggest.
You are correct and it doesn’t make sense from a fiscal perspective. The Leung proposals are sensible but require political courage, determination and stamina. I regret that we appear to have a government that in the words of the Labour Growth group is “ …risk averse …inward looking…cannot deliver lasting reform…” and I fear, that the political pressure for performative fiscal measures (perhaps to placate those on the left who are are perceived to be tempted by a Polanski led Green Party & the Sultana/Corbyn group ) will be great.
As always, illuminating and helpful commentary Dan, thank you. Let us hope relevant elements in government are on your mailing list.
Really great article as always. Aside from the immediate temporary revenue drop (which I would have thought would be far outweighed by the various benefits), I really don’t get why they don’t just replace SDLT with a revenue neutral property tax on new sales only (as suggested towards the end of the article), and frame it as ‘abolishing stamp duty [and replacing it with xyz]’.
Would that really gum up the market much more than the current huge lump sum tax on moving? I would have thought that the move would be wildly popular among anyone who might actually vote Labour, and not really that unattractive to those who won’t (i.e. the average pensioner with property) if the tax only applies to property bought after it comes into force.
Personally I would much rather pay a bit more tax overall to avoid the bonkers jeopardy of buying a house not knowing if I’ll need to stay in it well beyond the point at which it stops suiting my needs in order to avoid a ridiculously high tax on moving.
Think there is a typo in footnote 9 – the end of the footnote should be back in the body of the article.
Any changes to the system that results in negatively impacting the values of properties may have an effect on banks that have lent against the value of properties, the loan to value ratio (LTV). Should that LTV increase substantially, banks may end up having to pull back from the market as they have to hold more capital per transaction and hence have less to assign to new loans, and thereby negatively impacting growth.
I think the long term plan is to push people away from home ownership so that large corporations/businesses/hedge funds etc can own the houses we live in to make money from all those people who currently work hard to provide themselves with a living and the ability to care for themselves.
The people who run government (and those with aspirations to run Government) do not appear to want to make the UK able to sustain ourselves independently as well as be part of a bigger trading group, but want to make money off those of us who understand that we have to work to provide ourselves with a living and just get on with it everyday. I just feel that the world is going to rubbish – and all because of the few wealthiest people who want to retain all their wealth for themselves whilst trying to make themselves richer off those of us who simply want to get on with our lives.
This kind of nonsense is all over the internet. A moment’s thought would tell you it can’t be true – the return from rental property is too low for most investors, and certainly for hedge funds. And there’s certainly no evidence for it.
Please be more sceptical of stuff you read.
Not true to you Dan as a policy not wonk and not true for me as a residential landlord, but the failure to build and the transfer of wealth to those where were able to buy when price earning ratios were low or whose mortgages inflated away, see a system stacked against them.For them this tax is very attractive.
The Govt. is approaching it from a bad place and after the Farm/Estate debacle will probably end up fiddling around the edges and calling it a revolution.
Would an LVT include all land including farm land? Or are we talking the undeveloped value of the plot that your house sits on? If farmland would not be included then it would be worth stating that in any media discussion because farmers nerves are already beyond shredded regarding their situation (actual or imagined).
Yes agreed. Any land tax would be totally unaffordable for farms that are already under huge pressure due to a raft of unfriendly government policies and recent weather disasters. Many farmers’ mental health is at breaking point looking at financial losses this year and already business investment is stalling on the back of the government’s IHT proposals. You need to be very careful with the wording here so as not to put more pressure on people that may not be able to bear it.
You do not deal with the effect on house prices and on financial markets of main residences being CGT-free: their prices are increased by their becoming first financial instruments, second places to live. So we spend more of our income on houses and divert funds from investment in productive assets to over-sized, over-priced residential property.
Hi. On the subject of CGT everyone seems to assume that it would bring historic embedded gains into tax. But surely we don’t do retrospective taxation in the UK. Wouldn’t there have to be a base date of now? So the tax would raise nothing to start with and revenue would build up over time. And everyone would have to get a valuation.
And even if you do tax historic gains, you would be relying on people keeping records of their spending on improvements – which they most likely wouldn’t have kept because there was no reason why they should.
certainly previous extensions of CGT have taxed gains from the date of the change in law. But there’s nothing to stop Government taxing gain from some point in the past.
I read the Onward report with interest and a fundamental difficulty, despite its potential benefits, is the medium term tax revenue hole it creates. For a £900k house, what was a £35k SDLT bill turns into a roughly £2k/year perpetual national proportional property tax, so it could take more than fifteen years for the Treasury to get what they got before. Even looking at a two term Labour government it doesn’t look like it helps much, unless the fiscal benefits of unclogging the housing market are very significant but that seems unlikely.
I get that in cash terms, but what’s the treatment from a government accounting perspective?
Has there been any suggestion that there will be any indexation allowed for long term house owners? It seems unfair to tax a notional gain resulting from inflation.
I’m certainly in favour of indexation, but given we don’t have indexation on other capital gains, it would be odd to have it on houses…
I think that’s one of the main issues they need to fix. It’s relatively easy to work out the inflation element and should apply to all capital gains.
If you own a £100,000 house for 25 years you would expect it is worth ~£210,000 with a 3% average inflation. You have not “gained” £110,000.
Very different to someone whose house has gone up £110,000 value in 1 year.