Property experts have warned that Rachel Reeves’ plans to levy a so-called “mansion tax” on high-value properties would stall housing sales and add to the exodus of the super-rich from the UK.
Mortgage brokers and financial planners have rounded on the chancellor after reports she is considering hitting the owners of expensive properties when they sell to plug a £40bn hole in the public purse.
The mooted plans would see higher-rate taxpayers pay 24 per cent of any gain in the value of their home, while basic rate taxpayers would be hit with an 18 per cent levy. Currently, capital gains tax is not paid on the sale of primary residences.
Proposals being considered for the autumn budget, the private residence relief would end for properties above a certain threshold, sources told The Times.
The threshold is said to still be under consideration, but a £1.5 million starting point would hit around 120,000 homeowners who are higher-rate taxpayers with capital gains tax bills of £199,973.
Financial adviser Scott Gallacher, director at Rowley Turton, said a level of £1.5m would prevent most older homeowners, particularly those who bought properties in the 80s and 90s, from selling houses.
He added that the plans would “kill off the upper end of the property market” and be difficult to implement. Mr Gallacher said: “It would be insane if it creates a cliff edge in that properties over £1.5m are subject to Capital Gains Tax on the entire gain, as properties sold at £1.49m would incur no CGT whereas £1.5m might be a six-figure bill. If it’s only on gains above £1.5m, then the CGT raised would be minimal, as potentially you’d be exempting six or even seven-figure gains.”
He added: “Homeowners, especially older ones, who perhaps bought their houses in the 1970s or 1980s, would be daft to sell and incur a huge CGT liability. Instead they would be incentivised to hold on to the home until they die and pay no CGT.”
Meanwhile Simon Gerrard, chairman of Martyn Gerrard Estate Agents, warned the plans would leave families who bought homes in London more than a decade ago facing “eye-watering” tax bills.
“Meanwhile, those who are actually wealthy know how to bypass these moves and won’t pay it,” he said.
He told The Independent: “After the deadline passes people will simply not sell their homes. The property market above the threshold will die until Labour are voted out and the policy is repealed under a more sensible government.”
Laith Khalaf, head of investment analysis at AJ Bell, said the tax-free nature of primary residences is “deeply embedded in the psyche of homeowners”.
He warned: “A mansion tax set at high level would naturally cause people to worry it was just the thin end of the wedge, and the next time the government needs a bit of money they could just lower the threshold.
“It would also be an impediment to mobility in the housing market, as those with properties which might fall foul of the tax would be inclined to sit on them for longer, leaving a log jam in the housing ladder below them.”
And critics warned the tax change would add to the reported exodus of super-rich individuals fleeing Britain. “I can see a lot of families in London being caught with this higher tax bill, and it may push more wealthy tax contributors to exodus the UK, which is already a problem following the Chancellor’s last budget,” said Stephen Perkins, managing director of Yellow Brick Mortgages.
A Treasury spokesman said: “The best way to strengthen public finances is by growing the economy – which is our focus.
“Changes to tax and spend policy are not the only ways of doing this, as seen with our planning reforms, which are expected to grow the economy by £6.8bn and cut borrowing by £3.4bn
“We are committed to keeping taxes for working people as low as possible, which is why at last autumn’s Budget, we protected working people’s payslips and kept our promise not to raise the basic, higher or additional rates of income tax, employee national insurance, or VAT.” .
