Labour's Capital Gains Tax Plan: A False Revenue-Gainer

The Labour Party is reportedly considering the introduction of capital gains tax (CGT) on home sales, a move that could have devastating consequences for the housing market. The plan, which would see CGT applied at 18% or 24% for higher-rate taxpayers, aims to raise revenue through the taxation of gains on main residences. However, the evidence suggests that this would not only slash transactions but also potentially lead to a loss of tax revenue.

Key Takeaways:

• The Office for Budget Responsibility estimates that introducing CGT on main residences would lead to a fall in transaction volumes of over 45,000.
• The current main residence relief is the UK's largest tax relief, "costing" £31 billion, and exempting it from CGT would raise significant concerns about fairness and distortion.
• Proposing CGT on homes over a threshold, such as £1.5 million, would be unfair, distortive, and raise less revenue than expected, potentially even losing money.
• The introduction of CGT would lead to a collapse in house sales, resulting in a loss of revenue from stamp duty, which the Government currently collects from these transactions.
• The Office for Budget Responsibility already calculates stamp duty as deterring about 70,000 purchases every year.

Statistics:

• Estimated reduction in transaction volumes: over 45,000 (Office for Budget Responsibility)
• Stamp duty revenues lost: amounts equivalent to fewer people selling their homes due to increased costs
• Revenue loss from CGT: potentially up to £1 billion or more if fewer people sell their homes
• Number of stamp duty purchases deterred: 70,000 per year (Office for Budget Responsibility)
• Cost of CGT on a £440,000 gain: £45,000, unaffordable for most households
• Estimated revenue raise from CGT on high value house sales: potentially lower than expected, potentially losing money

Sources:

• Office for Budget Responsibility
• Dan Neidle, Tax Lawyer and Founder of Tax Policy Associates