Capital Gains Tax on Your Home? Think tank calls for homeowners to be taxed on house price hikes

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A new ‘real estate capital gains tax’ on all houses sold in the UK should be introduced to ensure that the costs of the coronavirus crisis do not unfairly fall on young people, a think tank said.

The Social Market Foundation offers a 10 percent tax on the gain from rising house prices on the sale of real estate or on inheritance after the owner’s death.

The SMF recommendation would mean that the current exemption from capital gains tax on first houses would be removed. In other words, the CGT would apply to all properties, including those where the owners reside, which are currently exempt.

The new tax would mainly affect the elderly, who own most of UK property

The tax on ‘unearned’ earnings is said to mainly affect the elderly, who own most of UK property and who have benefited from a dramatic rise in house prices over the past decades.

Those over 55 currently own 65% of total home equity, which is worth more than £ 5 trillion, including mortgage debt, having more than doubled in the past 20 years, according to the report.

Michael Johnson, who wrote the report, said: “The vast £ 5 trillion pool of equity in homes offers the Treasury the opportunity to pay for the economic damage caused by the coronavirus, thanks to the introduction of ‘a capital gains tax on unearned gains. in the value of the property.

What is the capital gains tax?

Capital gains tax is levied on capital gains realized on the sale of second homes, vacation homes, shares and investment funds – although the rate applied depends on the asset sold and whether the seller is a taxpayer at the base, higher or additional rate.

On equities, the rate is 10 percent for base rate taxpayers – 20 percent for higher rate and additional rate taxpayers.

On sales of second homes, the respective rates are 18 percent and 28 percent.

But there is a vast array of rules and exemptions underlying the system, which has created all kinds of loopholes and incentives that were not originally intended by the government.

Currently, crystallized gains in this tax year (ending April 5, 2021) of up to £ 12,300 are exempt from tax due to the capital gains tax deduction.

“The alternative is that young people will have to pay for a future loaded with debt. They are already extremely disadvantaged, financially, compared to the older generations. To ask them to bear the burden of this crisis in the decades to come would be unfair and unreasonable ”.

The tax would help raise £ 421 billion over the next 25 years, according to calculations by the Social Market Foundation.

It would essentially be a flat rate 10 percent tax on all homes sold or inherited and replace stamp duty, which would be abolished, and inheritance tax on first homes, which would also be removed.

This is the latest in a series of capital gains tax proposals after Chancellor Rishi Sunak ordered a capital gains tax “review” last week, reporting a future raid on the richest taxpayers to help foot the gigantic bill in the fight against Covid-19.

Rachael Griffin, financial planning expert at Quilter, wealth manager, argues that the plan to remove capital gains tax breaks on primary residences could discourage people from relocating as they would face a huge tax burden, which would hamper the recovery of the real estate market.

“Many will not have the cash and will only be able to afford it by taking part of the capital of a real estate sale transaction and using it to pay HMRC,” she said.

“This would then discourage people from traveling and slow down transactions. The Chancellor has just introduced a temporary stamp duty easing to shake things up, so it’s hard to see him take any action that could disrupt real estate sales.

The tax would help raise £ 421 billion over the next 25 years, report says

The tax would help raise £ 421 billion over the next 25 years, report says

Griffin also says it could hurt people who are considering downsizing in retirement and hoping to free up money to supplement their pensions.

She added, “It could cause people to use the equity release instead, to mitigate the tax threat and stay in their existing home. Likewise, it could also be advantageous for them to keep their family home until death in order to benefit from the CGT increase.

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