“Mansion tax” proposals could see CGT charged on high value homes

Following the news the government is considering introducing a national property tax in place of Stamp Duty, it has been further reported a ‘mansion tax’ is under consideration by the Treasury in an attempt to plug the £40bn gap in public finances. 

It is understood the October budget, the date of which is yet to be set, could see the current exemption from capital gains tax (CGT) under private residence relief end for properties above a certain threshold. CGT could be charged when homeowners come to sell their ‘primary’ residence. Higher-rate taxpayers would have to pay 24% of the value of any gain they make from the increase in the value of their property while basic rate taxpayers would have to pay 18%.

The Times reports discussions are ongoing around thresholds in the treasury, who believe it the potential to raise ‘significant sums of money’. One example cites a property threshold of £1.5 million would hit around 120,000 homeowners who are higher-rate taxpayers with capital gains tax bills of £199,973.

The news comes in the same week a ‘national property tax’ could replace Stamp Duty Land Tax. First reported in The Guardian, the tax would be paid on the sale of ‘primary’ owner-occupied homes although again the thresholds are unclear with £500,000 being suggested. The national property tax would be paid to HMRC by owner-occupiers, at a rate set by central government, on the sale of primary residences; stamp duty would still be collected on second homes. A second local property tax to replace council tax is also being considered.

Professionals have raised concerns any attempt to introduce higher taxes on property transactions could destabilise and slow the market; and hit older homeowners who might be planning to downsize. Paula Higgins, CEO of the Homeowners Alliance, described the proposal as ‘an attack on homeowners’ adding

“the government needs to tread carefully. Uncertainty around property taxes causes paralysis in the housing market. We’ve just seen how damaging this uncertainty can be: in April this year, when stamp duty thresholds changed, transactions collapsed by 64% in a single month – the sharpest fall on record. Homeowners can’t afford a repeat.”

Simon Brown, CEO of Landmark Information Group shared similar sentiment, adding a better solution would be to make home moving easier, organically increasing transactions and the associated taxes.

“Any tax that rises with property value risks slowing the housing market even further. If downsizing becomes less attractive, larger family homes stay off the market and transaction volumes fall. This reduces overall movement in the market upwards and downwards, and not only reduces choice for families and first-time buyers it also hits the Treasury by shrinking the tax base.”

The real answer is to create a more liquid market. When moving is easier and less costly, households can find the right homes, developers get clearer signals about demand, and the Exchequer collects more through higher volumes of transactions. A faster, more streamlined housing market is better for families, for business, and for the public finances.” 

With proposals to potentially limit gifting also being considered a combination of the removal of private residence relief, combined with potential increases in Stamp Duty, an ‘inevitable’ further increase in CGT rates at some point during this Parliament and any limitation on gifting, would ‘have a dramatic negative impact on the UK property market’ said James Ward, Head of the Private Client Practice at Kingsley Napley.

“Instead of looking to downsize and pass assets to the next generation, we may see the older generation sitting tight in their property for the next few years to see how the political landscape unfolds in 2029. It also is another illustration of baby boomers being tasked with the job of filling the UK’s fiscal black hole. We should not be entirely surprised given the £5 trillion transfer of assets expected from that generation over the next 20 years and the attraction of looking to tax that as far as possible, but some pretty radical changes to long-established taxes are being proposed.

“For those who have been in their property for decades, the prospect of having to pay Capital Gains Tax on a sale could trigger a substantial liability, not least as they will undoubtedly struggle to dig out the paperwork for any historic work carried out to offset against the gain. Our clients are certainly concerned about this upcoming Budget, as they were with the last one, and we have had a raft of new enquiries over the last month. I would imagine this will only increase once the holiday season is over.

“What can be done to combat any tax rises is a hard question to answer as we do not have a crystal ball, but I tell my clients not to let tax dictate their whole succession policy and to consider what is best for the next generation and the one below. However, sensible and significant steps can be taken now and should be completed before this Budget if possible, such as gifting assets and considering the use of trusts.”

The impact on homeowners will depend on where the threshold for any levy sits. Property portal Rightmove suggest if the tax was to hit houses at £1.5m or more, it would disproportionately impact London and the South, where 11% and 4% of homes are priced over £1.5m respectively.

“In essence this would predominantly be a tax on the most expensive areas of London and the South East. The London market is already feeling the effects of taxation more acutely than other parts of England, and this is likely to deter some moves at the upper end. While our data shows that only a small proportion of homes for sale are in this price bracket, alongside the proposed stamp duty changes, it could be a double whammy for the capital.”

said Colleen Babcock, Rightmove’s property expert.

Proportion of homes for sale over £1.5 million by region