One of Britain’s leading housing experts called on Monday for capital gains tax to be charged on main residences as a way of curbing property inflation, over-investment in real estate and unequal access to owner-occupied homes.
Kate Barker, a former member of the Bank of England’s monetary policy committee and author of a report for the previous Labour government on housing said the reform would be politically controversial but was the best way of tackling the UK’s under-supply of housing.
“Charging CGT on gains on our main residences would bring the taxation of housing more into line with other assets, and it would tend to discourage over-investment in housing”, Barker said in a new book, Housing: Where’s the Plan?, to be published on Thursday.
CGT is currently levied on second homes but Barker said the case for applying it to main residences was strong.
“Changes in house prices often result from public policy: restrictions on neighbouring land, transport links, or the quality of a nearby school, for example. It is odd not to tax these gains, which the homeowner has done nothing to earn, but charge CGT on the profits from selling a business enterprise. But it would undoubtedly face very strong public, and therefore, political, opposition.”
Barker said the best approach would be a CGT bill on housing rolled up by an individual or couple over their lifetime to be charged on the death of the second partner, as for inheritance tax. The amount charged would be subtracted from the estate for IHT purposes.
“This reform could lower the rate of housing inflation (as the effective tax rate on owner occupation is increased) and reduce the incentive to hold housing assets for investment motives. It would improve equality by increasing the ability of those not lucky enough to inherit a share of a property to compete in the housing market.”
Barker said CGT should only be charged on an increase in property values from the moment the new tax was levied. This would minimise disruption but the slow build up in revenues would mean the “government brave enough to introduce this new tax would take all the opprobrium while the benefits of a larger flow of tax revenues and more equal access to home ownership would only emerge over succeeding decades.
“Even an optimist about tax reform might feel daunted by this, and yet it may well be the best reform tackle the adverse social consequences of under-supply of housing.”
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