I have this morning published the next in my series of proposals that will make up the Taxing Wealth Report 2024.
In this latest note, I suggest that if capital gains tax was to be charged on the final disposal by a person, or their spouse or civil partner, of their main residence and that the gain then subject to tax should be that accumulated throughout their life, then maybe £10 billion of additional tax revenue might be raised per annum even if these properties were then taken out of the charge to inheritance tax.
The summary of this report says:
Brief Summary
This note suggests that:
- A capital gains tax charge should be made on the final disposal of a former residential home by a person or their spouse or civil partner.
- This capital gains tax charge would usually arise on the death of a person or on the death of the last surviving member of the marriage or civil partnership of which they were a part, but it could also arise on the merger of households, on a sale before moving into a care home or on disposal of a property before emigrating. A partial charge could also arise on downsizing.
- Residential properties would be taken out of the scope of inheritance tax if this charge was made.
- This charge would be considerably more equitable and predictable than current inheritance tax charges, which create considerable regional tax injustice.
- The charge is fair: it only arises when a person ceases to have use of their main residence.
- Without suggesting that the tax be hypothecated it is suggested that it is likely that it would be considerably more acceptable if a commitment was made to invest the proceeds in social housing.
- The proceeds that might arise from this suggestion are hard to estimate because the current level of gains of this sort arising on death is not known, not least because capital gains tax is not chargeable on death at present.
- It is known that the exemption of people's main residences from capital gains tax charge is thought by HM Revenue & Customs to cost £35.2 billion of tax foregone each year at present.
- Depending on the rates of capital gains tax chosen (and the Taxing Wealth Report 2024 generally suggests that those in use for capital gains tax are too low and should be subject to an investment income surcharge, which might be waived in this case) the amount of tax that might be raised could vary considerably. However, it would not be unreasonable to think that at least £10 billion of additional revenue could be raised a year, having taken into consideration the loss of inheritance tax on such properties.
- This proposal would require considerable consultation and great care in drafting to ensure that tax justice was delivered.
Discussion
Of all the proposals made in the Taxing Wealth Report 2024, this might be the most controversial and so the least likely to happen. It would, however, be inappropriate to ignore the considerable injustices that have arisen for tax and social purposes as a result of the exemption of principal domestic residences from capital gains tax charges since 1965.
That exemption has undoubtedly fuelled inequality in the UK.
It is also now heavily distorting access to the housing market for young people, with many of those able to secure their own homes now only being able to do so because of support provided to them by their parents because they have considerable untaxed capital gains inherent in their own homes.
In effect, this proposal creates a new tax. For that reason, estimates of revenue are hard to make because rates to be charged need not necessarily be consistent with those on other capital gains. However, when HM Revenue & Customs estimates that this exemption costs at least £35.2 billion per annum at present and given that gains on final disposals will, on the basis proposed, be those accumulated during life, it is quite reasonable to think that overall revenues might be at least £10 billion per annum, even after allowing for a loss of inheritance tax revenue.
Example calculation
The note that supports this blog post includes the following example calculation of a capital gain that might be subject to tax if this proposal was to be adopted:
Suppose that Jo bought a property in 1972 for £10,000. They sold it for £22,000 in 1982, buying another property for £35,000 at that time. They then moved again in 1993, selling that second property for £89,000 and buying another for £115,000. They then remained resident in the property with their spouse until they died in 2022, their spouse having predeceased them, having left their share in the property to Jo, meaning that the entire gain on the properties owned during life is due by Jo's estate. Jo spent £12,000 on a new kitchen in 2003 and £19,000 on a conservatory in 2007. The property was valued at £485,000 at the time of death.
The total capital gain is:
Charging capital gains tax on a main residence published
This can be rationalised as being the disposal value less the actual sum paid for the properties, which totals £80,000 in all. This is made up of £10,000 for the first property; £13,000 for the second property (being the cost less the proceeds on the first property); and £57,000 on the third property, being £115,000 spent less £89,000 from the proceeds of the previous property, making £26,000, plus £31,000 on improvements.
It is suggested that this sum should be subject to capital gains tax on death but that there be no inheritance tax charge on that gain as a result.
Cumulative value of recommendations made
The recommendations now made as part of the Taxing Wealth Report 2024 would, taking this latest proposal into account, raise total additional tax revenues of approximately £93.7 billion per annum.
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I wonder whether capital gains tax on homes could replace stamp duty? i.e. so that people were liable for the tax on the gain in value whenever a home was sold (not merely the last one). This would presumably discourage house price inflation (a good thing) and be effectively an extension of what you suggest above, but without the need for lifetime accounts. This is one of my main concerns with the above – will ordinary people have the records to implement this? Also, how do you phase it in? If you brought it in (hypothetically) next year, does that place a responsibility on everyone to try and reconstruct their property history? Not only which properties, buying and selling prices, but also costs of improvements?
I really do not think recreating properly history would be hard.
It is all on the land registry, for a start.
I’m curious about the Land Registry information, Richard.
I tried their search tool on our current and previous properties, purchased 1994 and 1986 respectively, and it had no price details on either of them.
There are apparently no price details for property purchased before 2000. My house purchasing history goes back to 1974 (with breaks in it) .
Unless they have a more comprehensive search facility for ‘official’ searchers I don’t see how this could work.
I am sure stamp duty records exist.
I also suspect almost everyone knows what they paid for their houses or can get a very good approximation.
And if not, I suggest an index back from sale price might be allowed.
“I am sure stamp duty records exist.”
Not for properties on which Stamp Duty was not payable. Even for those where it was, you really think HMRC’s records are that good that they’d easily be able to locate a transaction from 50 years ago?
“I also suspect almost everyone knows what they paid for their houses or can get a very good approximation.”
I’ve no idea what my father paid for his house in 1960. Since he now has dementia, I won’t be able to ask him. And you say here that “approximations” could be used but also say that without proof of costs no improvement costs at all would be allowed. That doesn’t seem consistent. It also flies in the face of many many Tribunal decisions where estimated costs have ben allowed in the absence of complete proof.
In your example you allow the cost of a new kitchen yet HMRC class some such replacements as ‘repairs’ which wouldn’t be allowed in a CGT computation. I can see lengthy appeals lasting years on every transaction over costs claimed. It would be unworkable in practice.
But you always act the same way when people bring up genuine concerns about your suggested policies. Airily dismiss them as ‘easy to solve’ without giving any details or simply dismiss the poster as a ‘troll’. I don’t think you do want debate on here, just slavish addoration of your suggestions.
So, OK, let’s presume HMRC do not have records and the Land Registry does not.
And let’s presume improvments are not allowed unless there is evidence of extending the property: otherwise they’re repairs. I was too generous. I apologise.
So the problem now left is not knowing the price of a property in 1960 (in your case)
Let’s solve that by using something like the Nationwide property value app and backdate. If we can get a value now, that would give the backdated indexed cost. The earliest year it can go to is 1973. So, let’s allow the 1973 value. I think that would be fair.
Now I have solved all your problems.
I go out of my way to do so.
And I only call people trolls when, like you, they behave like one, mainly identifable by the insult you provide. It’s so endearing.
PS Alternatuiveky, we could allow the average house price from 1966 as per government datahttps://landregistry.data.gov.uk/app/ukhpi/browse?from=1966-01-01&location=http%3A%2F%2Flandregistry.data.gov.uk%2Fid%2Fregion%2Funited-kingdom&to=2018-04-01&lang=en but I think i prefer the Nationwide data on at least a regional basis from 1973. But I have not explored the Land Registry data in detail.
This is a bit like what happens in Spain, a country which used to start from the recognition that people do not like paying tax and will do whatever they can to avoid it.
So they used to tax restaurants on the size of the premises ‘(which cannot be hidden): they did not tax cars but you had to have a licence and pay tax on a garage.
Now they have high taxes on property when you die. So people take out insurance policies to cover the tax.
While I agree wholeheartedly with the principle, I think there is an issue over enforceability. In the same way that taxing wealth would result in a huge number of appeals.
By definition this tax will apply mainly when the person who accrued the gain has died. That means they cannot provide evidence of expenditure. While the Land registry will hold details of property transactions it won’t hold details of the cost of improvements. I would not know how much my parents paid to put a new kitchen and bathroom in their house in 1980, for example. Indeed, I doubt they would have known 40 years later. There would also be appeals along the lines of complete redecoration and re-carpeting of a house before putting it up for sale, resulting in a better sale price, but no record of expenditure.
Is there a better way of assessing actual gain rather than proving expenditure?
The answer to that is simple: there will be no dediuction for costs in that case.
It is a simple principle universal in tax law. I am really not sure what the issue is.
An alternative may be some king of basic allowance which may be incresed on production of proof of expenditure. A bit like simplified expenses for the self employed, you either claim the simplified amount or prove a higher expenditure.
I don’t think it is resonable to allow expenses for those who can prove them and allow nothing for those who can’t. when it was never likely that proof of that expenditure would be needed.
We will have to disagree on that one
I like the idea in principle, but in practice I think it’s unworkable, in the same way that you rejected a straight wealth tax as good in principle but unworkable in practice.
You allude to the difficulties and say it would require great care in drafting. But I think you have underestimated these difficulties and as a consequence your proposal comes across as half baked.
What would be good is over time it might reduce the differential between CPI inflation and house price inflation, and it is precisely that differential which is the primary source of inequity and intergenerational inequity at the moment. Yet if it did do this, then given your dislike of indexation relief, you would just be taxing people on inflation eventually and also raising far less money over time. In general I think a land value tax would be a fairer way to address this area.
The practical issues are immense. What if someone moves from an home they own into rental accommodation due to a family breakdown? Where would they find the money to pay this tax and it might not be known whether they would buy another property again? Would the gain be based on the entire property value if the property still had an outstanding mortgage?
The usual relief in capital gains tax for improvements is unworkable in this scenario. The data and evidence will not be available. How can someone provide evidence of what they spent on a new kitchen from say 30 years ago when they had no prior knowledge of the need to preserve such data and evidence for tax? How are you going to reconstruct this data from someone who’s died? In practice people often don’t make a completely new kitchen but refurbish an existing one with perhaps an element of improvement. Unless there is a clear way to demarcate, the capital gains tax rules would treat it all as an improvement. So someone spends £25,000 on a new kitchen but because they added a granite worktop, when there wasn’t one previously, and they don’t have enough supporting data, the whole cost of the refurbishment would count as a capital improvement under current rules. Whereas if the refurbishment kitchen was more like for like then it wouldn’t count as a capital improvement under current rules. This doesn’t seem right for what you plan.
On the other hand someone might have started off with some gas fires, then installed gas central heating, and then years later, switched to a heat pump system, perhaps eventually having being forced to by regulations. But then the gas central heating is no longer present and so cannot count as an improvement providing capital gains tax relief.
This is all unworkable and likely to be impossible to implement fairly.
I nyte you are trolling, as usual. I am sorry – but that is your tone.
However, let me tolerate that and answer the questions:
1) I have no probloem with taxing infaltion – almost all UK wealth has arisen because of it. That would be fine if all benefitted but they don’t, so of course we have to tax infaltion. It’s the right, fair and proper thing to do.
2) If someone sells to go inmto rental accommadation they pay the tax – which could only arise if there was a gain. How does a mortgage come into that? Your question makes no sense. If they buy again, they get a refund.
3) So, let’s not allow a deduction for improvments. Problem solved. I was too generous, apparently. Do you prefer that? Or shall we say an imporvement has to change usable square footage? Would that work?
You have raised nothing of consequence. As I said, you are just trolling
It is tiresome to point out obvious practical difficulties with your proposal, clearly shared by many other commenters on your blog, and to be dismissed as trolling.
Your solutions to what I say appear to be to disallow any kind of relief for improvements, or to possibly only allow it for extensions (you’re not entirely clear)? But why only extensions? That is arbitrary? What about people who improve an apartment, because they couldn’t afford to buy a house. Is it just tough on them?
If you’re disallowing relief for improvements then this isn’t really capital gains tax at all. It’s something else entirely. In fact without indexation relief for long time home owners who die too it amounts to just a straight tax on the vast majority of the value of their last property’s value. I.e. it’s really then just a form of inheritance tax but levied far further down the wealth spectrum.
Except it’s worse than that in terms of fairness, because at least inheritance tax is based on net worth at death. Your proposal isn’t, given what you said about mortgages. So someone who used equity relief in their later years might end up leaving a larger capital gains tax bill than the equity in their property, or perhaps in some cases a larger tax bill than their entire net worth on death. Only what would happen after such a proposal as yours was implemented is that such people wouldn’t be able to obtain equity relief assuming HMRC had a priority claim on their estate. This might impoverish them – perhaps they were drawing down on pension investments (rather than an annuity) and lived longer than expected, but could not use equity release now. Or they needed extensive paid home help and can no longer fund it themselves.
Michael
I call you a troll, because you are.
You use a standard technique. You appear to agree. Then you don’t, setting up straw men to do so.
Take this case. You accused me of being too generous for allowing relief on repairs. So I appeased you. Now you criticise me for doing so.
This is another trolling tactic: time wasting.
I am bored by your tactics.
Richard
PS And yes: if you take equity relief, you could end up in negative equity under my proposal. So, the estate will not be able to pay because the money has already gone.
The US has Capital Gains tax payable on the gain from the sale of one’s primary residence. There are tax free allowances and restrictions so that one can’t churn properties.
There is a logic to this that is hard to fault but I’d agree that the historical records would be difficult particularly when home modernisation is involved. Having lived at the same address for 40 years and had 3 episodes of house remodelling in that time I would have to identify builders accounts/invoices that were 40 years old, 30 years old and 20 years old none of which would have gone anywhere near the Land Registry.
I do totally accept that I have ‘benefited’ from rampant house price inflation that has just landed in my lap. Ironically it could be argued that I would be incentivised to ‘downsize’ to a high priced smaller property to soak up the capital gain!
One of the few benefits of Inheritance Tax is that it collects some of these gains though as my father who was a Chartered Accountant always said it was the only tax that was entirely voluntary. And yes we paid IHT on my parent’s estate.
Downsizing would trigger the charge
If proceeds are nit reinvested tax would be due ion the non-reinvested part
And yur father was wrong: IHT is not totally voluntary, but it is full of holes
Downsizing is generally done so that the people doing it will have some money to live on rather than be a burden on the state. It’s also good for society as it frees up larger properties for families. I am quite certain that the fact that 40% or 45% of any equity released would have to be paid in tax would be a huge disincentive for people to downsize. I can’t see that that would be good for anyone.
That’s fine
The tax will be paid eventually anyway
It will not be avoided by delay
Personally for simplicity’s sake I would opt to simply end the main residence exemption for CGT so the tax is charged whenever a house is sold.
One point that I would make though is that in its current form, while the Land Registry shows my house with my name against it there isnt anything to link me to any other properties I own or have owned. What is needed I suggest is that when someone buys a property for the first time they are ‘identified’ so that subsequent purchases can be linked to that one person if that makes sense
In the note I explain why that is nit a good idea for social reasons
Hideously unworkable.. close the door on this Richard, even ardent supporters of yours are telling you!
No they aren’t
They are saying there may be some problems with record keeping, at most
I have offered solutions
Instead of deducting the specific amounts spent on maintaining or upgrading a property maybe there could be a deduction of say 1 or 2 percent which is presumed to have been required to be spent?
Why?
For what reason?
Heaven help anyones estate if the house or land on which they built a house 50plus yrs ago
They will have maintained it out of taxed income , replaced, kitchens, bathrooms roofs , etc etc …to then levy CGT would be absolute extortion on a grand scale …IHT right across the South is bad enough but this would be daylight robbery …why on earth should those who scrimped and saved and went without having endured the poverty of 1940s 50s 60s and raised a deposit, paid a mortgage with interest of 12 or 15 % and never less than 5 % and never received a penny in benefits or paid more than 20% Basic Rate Tax see their children and Grandchildren deprived of an inheritance because there was never spare cash to splash on them in their lifteime then be robbed to build social housing for Boat Loads of Asylum seekers who already get far far more in cost of accomodation and pocket money than our own sick disabled and pensioners do ….this is an insane idea …go tax the wealth of Rishi and his chums instead
I thought I would post this to show the sort of comment I get here, most of which does not get published.
And then people wonder why I get a bit shirty with trolls?
My advice to Helen is that she discover what it means to be human before it is too late.
And that she counts the blessing of having unearned wealth to pass on to her children, even after a fair tax charge.
With power of attorney, I have just sold my elderly mum’s house to pay for nursing home fees which are an eye watering £1400.00 a week. Given that she and my late father brought the house for a few thousand in 1968, that is a few hundred thousand in gain which will be spent on her nursing home fees. I presume this tax would diminish the amount in the pot before we run out of funds. This is actually a really stressful time for our family and taxing her estate in this manner before her death seems cruel. Have I misunderstood?
There are three things cruel about this.
The first is that the state is not providing for your mother. With the taxes I propose that would not be necessary.
Second, it is cruel that not everyone can enjoy what your mother is going to have. Again, fair tax could solve that.
Third, it is unfair that you are being taxed on your mother’s declining health when others aren’t.
I am proposing ways to end those unfair situations.
Why is that unfair?
“The first is that the state is not providing for your mother. With the taxes I propose that would not be necessary.”
What you are saying is that Maria should not be able to look after her mother in the way that she thinks best but that the state should take from her so that the state can look after her mother in the way that the state thinks best. That it is wrong to strive to improve yourself as the state should be in charge of that. At least Maria can decide where her mother should be looked after and how. You would take that from her and put the state in charge. Because you think the state always knows best and that is because you think you know best and imagine a state acting according to your wishes.
As CS Lewis said:
“Of all tyrannies, a tyranny sincerely exercised for the good of its victims may be the most oppressive. It would be better to live under robber barons than under omnipotent moral busybodies.”
Politely, that is nonsense.
I am suggesting the state should provide proper care for the elderly, which is all.
The rest is your hyperbole and utter nonsense.
But perhaps you think the NHS should not take people into hospital and away from the care of their families as well?
If England had a register of Sasines it would have so much easier!
True…
But let’s be honest, it does not work that well in Scotland
Just so I have this clear. If a married couple were to separate with, say, the husband signing over his half of the house (their only asset) to his wife and moving into rented accomodation, he would be landed with a tax bill, probably in the tens of thousands of pounds but with no cash to meet that tax bill.
You don’t anticipate any problems with that?
You know that she acquires his CGT history in that case?
“You know that she acquires his CGT history in that case?”
That doesn’t make sense. The principle that spouse’s acquire their other half’s CGT history applies when there is no CGT charge because of spousal exemption. When no CGT charge arises on the transfer. But your new rule creates a tax charge on the husband. In that scenario if (say) the house was originally purchased for £100,000 and was worth £500,000 on separation the wife would surely be deemed to have acquire half the house for £50,000 and the other half for £250,000. So the wife hasn’t acquired the husband’s CGT history. If you did do that you’d create a double charge. If you treated the wife as acquiring the whole house at £100,000 you would end up taxing both the husband on separation and then again the wife on eventual sale on the same £200,000.
Besides, whatever the position of the wife, you’ve still got the husband looking at a tax charge of up to £90,000 on separation in the above example when he may have no cash to meet that tax bill.
Your idea does not seem to have been thought through properly.
If the property is transferred to the wife on separation or death there is no gain or loss and the wife acquires the history.
It is very clear I allow for these transfers in the proposal and make clear no gain arises then as a result.
Why are you criticising the proposal for something you made up, not something it suggests?
I think it is you who is having the problem thinking things though, not me.
God, this has made me depressed.
Our first property was a flat only 20 miles away from this bungalow, which we bought for £2750 in 1967. We lived in it for 4 years and sold it for £4000. The couple who bought it from us lived in it for less than 2 years and sold it for £6000.
After we sold the flat, we bought a house two streets away from it.
Then we moved to Stalham in Norfolk, then Peterborough, then Hampshire.
We then moved back to Hull for ten years, then York for ten years and I have been in this bungalow for thirteen years.
Out of all those moves, with a few rents in between, the only house price I can remember is this one. It took all our cash from the sale of a guest house in York, which we sold for £100,000 less than it was on the market for, because my husband had an illness which made him lose his balance and he was falling down the stairs, so we had to move at possibly the worst time.
I also know that the difference between the cost of this house when we bought it and it’s deemed value now is the cost of the roof I had to replace last year.
What’s depressing me is the fact that I used to be able to remember what I called useless facts like that with no trouble.
First signs of dementia, or signs of long covid? Take your pick.
In the meantime on the front of the Guardian is an article about HMRC investigating the tax affairs of Bamford. Sorry, but that’s where any HMRC money should go, rather than diverting into taking money from families like mine.
His family has given £10 million to the tories over the years. My bungalow is worth less than £200,000.
Apologies for putting an apostrophe in it’s when I should have written its.
But this is one of many proposals, and as I said the one I think least likely to happen.
But the reality is that home ownership has created divisions in our society. How would you address that?
And I am addressing the very wealthy too.
Can I also be clear: this would clearly impact me (as will some of the other charges I suggest) and I am proposing them anyway.
yes, home ownership has created divisions in society, but it always will. What about all those people in the North East and Yorkshire, as well as other areas, who were persuaded by Thatcher, etc., to buy their pit houses? What about all those people who bought their council houses at reduced prices because that was all they could afford? They would never have been able to afford the full price. I know someone who lives in a house like that and the house is worth £60,000 on the open market. She’s lived there for over 40 years.
Should HMRC resources be spent on getting money from people like that, or from the wealthy? Should there not be some sort of lower limit?
HMRC spend time getting money from people earning a few thousand a year from self employment, and rightly so.
They also spend money on tackling fraud, and again rightly so.
They should do more of both.
They should devote more resources to the wealthy – but they already give them far more attention than they do most people.
I do not dispute your suggestions, but they are nit the same as objections to this proposal.
If there was a significant tax free allowance fir this tax – £100,000 or maybe even more – would that make a difference to your feeling?
If elderly care was offered in exchange would that, again make a difference?
And if the rate was progressive above a tax free sum would that alter anything?
I am fully behind you on the inequity of unearned capital gains on primary residences. It is divisive and perpetuates inequality down the generations. Something is certainly needed to resolve it. But, with great respect, I must disagree that this is a good way to do that.
I am most grateful for your previous, and hopefully forthcoming, suggestions on tax reforms. These are much needed to answer the question ” how will you pay for it”. And no one else is doing it. So thank you.
My concern is that, as you said, this is controversial. You enemies will pick on your weakest ideas to try to discredit the whole of your work. I fear this one may be used to undermine your other good ideas.
One aspect of your proposal that concerns me is that it appears to be retrospective. Your example account clearly shows taxing the gain on transactions that took place, and were completed, many years ago. I doubt this legal, would pass scrutiny in the House of Lords or would survive legal challenge.
I’m sorry to disagree. Respectfully I’m minded to think this is not one of your better proposals.
I hear what you say.
But tell me how you will deal with the gross wealth inequality that the lack of taxation of private residences creates?
Or are you saying we should just accept it? I have put my neck out. No one else seems to be willing to do so.
I think that capital gains on future sales may be a way forward, but not retrospectively.
As an aside, many years ago, I did a rough calculation of the effect of reinvesting inheritance into property. I think this what happens with a considerable slice of inheritance. My conclusion then was that it increased house price inflation by one or two percent per annum. Whilst small, this builds up over the decades and adds to inequality. So we need to fix it.
My proposal would be to abolish stamp duty (a tax on mobility which is not helpful) and replace it with a property value tax (not a land value tax). I would make that tax progressive (of course). I would asses it on total property wealth, so that second home owners would pay proportionately more. I would make it an optional charge (no means testing for simplicity) on the property when it was sold so that owners wouldn’t have to find it immediately. This would be to avoid claims of taxing the property rich but cash poor such as pensioners. Actually I don’t think it is particularly unfair that people with unearned capital gains might have to move. But that’s best avoided for political expediency. And I would use it to replace the funding for the Council Tax (to try to avoid the unfairness multi million pound properties paying a, relatively, trivial amount of council tax).
If handled properly this might immediately slow the ever increasing price of houses, because the owners would have to budget for this tax as well as mortgage costs.
I guess there’s difficulties with that too that are not obvious to me. But that’s the benefit of discussion. Anyway, since you asked, that’s what I’d do.
I am struggling to see why that is better or fairer than what I propose.
Yet again somebody else is posting under the name Michael, which I have used on this blog for years, and it isn’t me, but such is life!
Personally I think the plan sounds pretty reasonable, almost everybody knows what they spent on a house even if they can’t immediately prove it, although maybe heirs don’t have that information, but I am sure a “reasonable” estimation could be made in those cases.
The only slight modification I would make is to say that where CGT has been paid within the past 12 months on the disposal of an asset it wouldn’t be unreasonable to exempt the gain amount from IHT. It does feel slightly unfair that any sale just prior to death results in IHT on top of an amount already charged to CGT. You could apply that concept to both housing and other assets.
I don’t think you can take residential properties out of the scope of IHT completely though, only the gain made on them. If you did take the complete value of the residential property out of scope then the “close to death bed” purchase of a huge property (on which there would also be no significant taxable gains) could take most of the estate out of the scope of IHT.
If you read the note I make clear I am aware of that point and that it would need to be addressed. I think it a fair one.
I note your last point: that would need a minor anti-avoidance rule
Richard,
I am afraid that I am on the side of your critics.
Hypothetical question:
A professional builder buys a semi-derelict house, renovates it and sells it.
On what basis should they pay tax? Should the only cost they can claim be the original purchase price? Or can they claim the actual costs of purchase and renovation?
If a professional can claim renovation costs, why should a private owner not be able to do the same?
The climate crisis requires massive investment in home improvements. Would your scheme not be a Sunak-level deterrent? Rather than subsidising energy efficiency, you would be taxing it.
I may be biased, because we have a stake in this issue. We bought our house in 1975, and it should remain suitable for us until we need to go into sheltered accommodation. Maria (above) points out the fees involved. We were relying on the sale of our house to fund our accommodation for some years. Eventually the proceeds would run out, there would be no inheritance, and we would have to take our chance.
A builder renovating a house pats tax on their business. They do not make a capital gain. The example is not relevant to what I am discussing here.
My proposal allows for renovation costs – which can be proved, just as the builder has to prove theirs.
When people objected to proof or said the issue would be open to abide I rested whether they would be happier without costs being allowed. They weren’t. So I would allow them – although there would need to be very clear rules.
But I am nit sure what you are objecting to in my proposal except that you think the gain should be yours alone. This is the standard objection to all taxes on unearned wealth. Have I got that wrong?
Would your position change if the government paid for care for those needing it, eliminating your risk?
Richard – Excellent to illustrate your plan!
Some brainstorming about your proposal to improve political feasibility
1. Could it be progressive with a basic exemption which would exclude most people but the affluent?
2. A tangential consideration which you may have already considered or are considering in another part – Could the sale of commercial real estate include all the land appreciation gain? That is if the property appreciated £5 million, all would be eligible for tax rate calculation. The full inclusion would be because the land appreciation is not a capital gain, but a gain of nature’s value. Again this tax would exclude the great majority of people who do not own commercial real estate.
1. Yes. My note makes that clear. I don’t think many have read that.
2. That already happens .
I’ve read your proposal through again, including the bit that says this will be a new tax, which I thought you were not going to include in this, and nowhere can I see anything that says the majority will be exempt.
Can you please show us where you say that. It might have avoided a lot of misunderstanding.
I didn’t say that.
I am not sure the majority of homeowners should be because the gains they have make are the problem that needs to be fixed, and they are a major cause of inequality.
I asking what you think. What gains do you think should be exempt?
“1. Could it be progressive with a basic exemption which would exclude most people but the affluent?”
Joe Polito’s number one comment, to which you responded that you had made it clear in your notes. I can see nowhere in your notes implying that most people would be excluded.
How could somebody who had bought a house for £20,000 forty years ago and sold it for £60,000 just before her death be excluded? Particularly someone who had never had any major refurbishments done to the house.
At the moment a house valued at less than £350,000 is exempt from CGT, I think.
I can’t see any exemptions in your note.
I did not propose them.
Do you think there should be one?
How much?
£100,000? More?
Yes, I think £100,000 sounds a reasonable and fair amount to be exempt.
It will leave out lots of people who were forced or bribed by Thatcher and cronies into buying their colliery or council houses.
I may well do some modelling on this
Thanks
The Tories or rather dumb Thatcherism hoist by its own petard:-
https://www.theguardian.com/politics/2023/sep/29/uk-households-face-tax-rise-of-3500-a-year-by-next-election-finds-ifs
And where are the Tories stopping the state providing top up benefits for workers’ wages? Nowhere to be seen of course! The UK in a dreadful mess!
Do you think if the tories raised the tax thresholds for next spring that their chances would improve?
Yes
Better not give them ideas, then, although they have ruled it out until 2028, I think.
Richard
A very thoughtful proposal in my view. Most won’t like it because most will pay. I have just one question. How would you suggest those who have estates passed down through the generations, with no sale being effected, be dealt with?
CGT is payable on gifts at market value.
They will have the problem of finding cash to pay, but the tax will be due.
Richard …On my question about including the entire commercial real estate gain taxable. I am most impressed the UK already does so. Canada only includes 50% of that gain. America probably less.
Richard, when you finish your project, you should send it to Coy
https://www.nytimes.com/2023/09/29/opinion/government-shutdown-national-debt.html