A new report wants the government to consider slapping Capital Gains Tax on profits made from appreciating house values for all properties, not just additional ones.
The report says existing home owners, and particularly those who bought in the late 1990s and early 2000s, have made what it calls “largely unearned windfalls.”
The report, from the Resolution Foundation and the ‘abrdn’ Financial Fairness Trust – claims those aged 60-plus have seen the biggest windfalls – at around £80,000 on average – compared to an average of less than £20,000 for those under 40 years of age.
Gains have been largest in London, where on average people have gained £76,000 since 2000, and smallest in the North East of England, with an average gain of just £21,000.
With rising house prices accounting for the vast majority of the overall rise in property wealth over the past 20 years – rather than a larger housing stock or home improvements – the report states that “this £3 trillion wealth windfall has been largely unearned.”
It goes on to say that such windfalls have been “largely untaxed too – with primary residences exempt from capital gains tax, in contrast to other assets where capital gains attract tax rates of between 10 and 28 per cent.”
The report says: “Extending the scope of CGT to primary residences with a 28 per cent rate on all housing capital gains built up over the past 20 years could raise around £11 billion a year, with owners required to pay nothing until they exit home ownership or pass away.”
It suggests setting a £75,000 allowance which, it adds, would mean over half of estates don’t have to pay any tax, while still raising £4 billion a year.
“Alternatively, unearned capital gains on a primary residence could no longer be covered by the Inheritance Tax residence nil rate band, raising up to £3 billion” it suggests.
The revenue raised from these windfalls could also be used to make more progress on a major downside from this wealth windfall – falling home ownership among young people, who have been priced out of the property market.
Adam Corlett, principal economist at the Resolution Foundation, says: “Inflation-busting house price growth over the past 20 years has delivered an unearned, unequal and untaxed Great British wealth windfall worth £3 trillion that makes up a full fifth of all wealth today. But not everyone has shared in these spoils, with older home-owners gaining over £80,000 on average, while the least wealthy third of households have gained less than £1,000.
“Choosing not to tax this huge housing wealth windfall because of the political and administrative challenges involved has real consequences, including higher taxes for workers and businesses.
“With the government on course to raise taxes by an equivalent of £3,000 for every household in Britain by the middle of the decade, it’s time to reconsider a range of practical options for taxing these unearned windfall gains if we are to protect workers’ living standards in the years ahead.”
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So, inheritance tax and capital gains on your own homes?
Yes what a joke this party is
@Jan byers
What party? This isn't the Government, it's an independent report.
But the value of other houses have gone up pro-rata, leaving hone-owners short of funds if they want to move house.
That’s reply is way too sensible for these people to understand.
Excellent that would stop the market in its tracks. Never unpopular for lefties to suggest taking away from those that have worked hard, held down jobs, and looked after their families .
WE need a Flat Tax of 10% on everything , gross earnings , no allowances , no accountants and no cash black economy . People don't mind paying 10% Tax .
I understand that's how it works in Hong Kong although at 15%. I might be wrong.
The “Financial Fairness Trust… fairness is always a matter of perspective.
The chances of this being adopted by a conservative govt elected predominantly by people over the age of 40 seems highly improbable.
How about using a tax on uplift for sellers to replace SDLT for buyers? This would put the burden on those who already have (unearned) equity rather than on those struggling to save it out of earned (and taxed) income. Much fairer surely?
Don't necessarily disagree with this, however how do you calculate the 'uplift'? If I bought my house and extended it several times over the years, do I pay on the uplift from the purchase price, or the net price after factoring in the cost of improvements.
I've always thought that SDLT should be switched from buyers to sellers, as whilst it wouldn't necessarily raise more tax, it put the burden more on the people who you would normally expect to have the equity to pay it as opposed to those who have spent years already saving for a deposit.
and if prices fall
Everything goes up in price so lets tax everything then
Please let's lose the myth that equity in a property is 'unearned'. Capital appreciation that you accrue in a property, a business, a classic car, a bottle of wine or whatever is value that the owner has acquired due to the actions they've taken. The fact that they didn't have to pick up a toolbag and clock in to earn it is neither here nor there. This is the economics of supply and demand (not to mention inflation). The person who took on the full liability of the mortgage, took the risk, took the responsibility deserves the benefit of the capital appreciation (and the same should go for businesses too). What happens if the property goes down in price? Tax back?
Well, according to the WEF, we won't own anything in nine years' time so this is a bit of a non-story, am I right?
Aunty Ethel wants to sell her home and move into lateral accommodation as she is having trouble with the stairs. She will use the proceeds of her sale to buy her flat. With tax she will not be able to do this . Capital gains tax on 1st homes is a completely daft policy and will stop the market in it's tracks, reduce supply and increase prices as per other comment. A proportional property tax is much more sensible. Economics 101 - usage taxes are much more efficient than transaction taxes as they stimulate flow and create economic activity - and maybe even maybe helps the government (whichever one) balance their books. .
And how will “owner improvements” be accounted for?
Wait till Labour get in they will cripple anyone who gets off their a##e and works to better themselves
Now the Tories are doing it
This isn't the Tories Jan. Read the article!
Why not retrospectively reclaim child allowance from families, because, well, the country really couldn't afford it at the time? Or demand tuition fees from those who 20 years ago got full university grants? Or why not retrospectively reduce the personal allowance and make people pay back "essentially unearned tax breaks" for the past 20 years?
I keep coming back to taxing the funds from an equity release a being a good idea.
The problem is that people aren't selling homes because of the stamp duty. Now they wont because of another tax. Free owner occupied family homes from tax altogether and allow the market to sort itself out. Those who think properties are to expensive only live in London and the south east. If they were in the USA they would want to live in Beverley Hills.
All property locations started off as a field with nothing there. They deserve the right of continuous improvement just like anywhere in the world.
I'll bet the Mr Corlett is a serial renter or has bought only recently.... in london
As a tool to completely disrupt and destroy the housing market I cant think of a better one. SDLT has already caused serious difficulties because, as with most Government actions the unintended consequences are always a surprise. This idea would make SDLT look like a minor hiccup.
This is a tax which if brought in won't replace a tax on buyers rather it will be just what it is - another tax. Every single tax ever created is simply added to the already heavy burden on people. Someone said we shouldn't worry because soon we will own nothing and be happy, yep I agree and what a better way to remove what we 'own' by making ownership just a way of feeding the Treasury. It's disgusting, yet the people at the very top, no not the millionaires as most of us who live in London are already 'paper' millionaires, I'm referring to the rich, the top 1% they will pay nothing because as usual there will be loop holes they can employ to get around it, loop holes beyond most of us. Let's not forget the super wealthy who create 'Foundation's are just a way of diverting their money into a vehicle that is tax free, it's still their money and they divert it in a way that results in only paying tax on what they spend not what they earn like the rest of us. It's just another way of getting the many to pay for the few, don't be sucked in by thinking it's necessary, quite frankly it isn't. Take the NHS for example, it's not money they need it's better management, there is enough money thrown into it to fill a black hole. The funding of the NHS is misappropriated like every thing else. Government contracts, local Government it's all about diverting money from where it should be going to where it does go, into undeserving people's pockets. Capital Gains on your personal home will just make you poorer.
I do not understand why such a report has been published if it wasn't for the government's request. It is amusing when they tell us that the proceeds from such increase will go to building affordable homes for young people. Which young people are they talking about? the ones from China, Kuwait or Hong Kong? Surely with starting prices of £500,000 I cannot see young ones from the UK to be able to buy a property.
I guess it's one way to further ruin the housing market, the authors and supporters of this have to be smoking something they should not be........it will totally kill market and stop the majority of sales, prices rise, and the whole system just gets worse. Does the promise of using the money to fund more houses for first time buyers follow the promise a number of years ago that for every house sold under the right to buy another would be built........ i thought so. Total thieves.
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