Capital Gains Tax - could it be applied to first home...

Speculation is mounting that Capital Gains Tax could for the first time be applied to gains made when owners sell first homes, not just buy to let or holiday properties.

Chancellor Rishi Sunak has asked the Office of Tax Simplification to review CGT, with a consultation now underway and any changes scheduled to be announced in the autumn statement in November.

The expectation is that CGT will be changed to gather more revenue for the government, which is cash-strapped following emergency expenditure over Coronavirus.

CGT is already 10 per cent higher for the sale of buy to lets and second homes - at 18 per cent and 28 per cent for basic and higher rate taxpayers - than it is for investments. And in April HMRC changed its rules requiring UK residents to submit CGT returns, and pay any tax due, within 30 days of completion of a property sale.

Private residence relief means that nobody pays CGT if they sell their owner occupied main home for more than they bought it; this is worth around £26.7 billion according to the National Audit Office.

Now Merryn Somerset Webb, editor-in-chief of Money Week, is suggesting in an FT article that the Chancellor could introduce radical changes later this year.

She says that CGT payers are already known to be twice as likely to be higher rate taxpayers than non-CGT payers.

Therefore she ponders: “We might … see limits on the exemption for primary homes, currently depriving the Treasury of a whopping £26.7 billion a year. Now that stamp duty has been cut for houses costing under the fairly arbitrary amount of £500,000, might CGT be introduced for those selling a property for more than £500,000?”

And Svenja Keller, head of wealth planning at Killik & Co, says: "The stamp duty holiday is to encourage a kick-start in the housing market, whereas CGT on first homes could counter that, particularly as some are sitting on very large gains in their main homes … Tax rates have been low for many years, and therefore it seems to be an obvious source of income for the government to consider when looking at how to recuperate the cost of Covid-19.”

Not everyone is so pessimistic however.

Rachel Griffin, tax and financial planning expert at Quilter, has told Financial Reporter: “Without the [main homes] relief some people would have a massive tax bill which they could only afford by taking some of the equity from a property sale transaction and using it to pay HMRC. That would subsequently impact their ability to move up the ladder so it could slow transactions and put some people off moving. The Chancellor has only just introduced temporary stamp duty relaxation in order to grease the wheels of the housing market, so it is hard to see him taking steps that could disturb property sales.”