Call to tax house sale profits

Sellers may see their house sale profits fall

Homeowners should be taxed on any profit made from the sale of their houses, an independent think-tank has suggested to the government.

Sellers should pay a capital gains tax of around 40% on profit on their property from house price rises to ease the volatile housing market, says the Social Market Foundation.

The foundation also suggests an annual property tax of a proportion of the property's value.

It says a shortage of property is partly caused by the fact that as prices rise people have little incentive to sell their property in the belief that they could make more money if they delay selling.

"The only truly effective means for tackling this problem is to increase the taxation of homeowners, bringing it into line with the treatment of private landlords," said report author Tom Startup.

Rising tax bill

"Capital gains tax on home-ownership and an annual property tax proportional to the market value of the property would be necessary to reduce volatility and restore building levels," he said.

Taxing their profit at 40% would encourage people to sell because as the value of their property went up so would their tax bill, said the report.

The cut in their profit would also reduce the amount of money people had to buy their next house, reducing the likelihood of people chasing prices up.

Mr Startup said the new taxes could be offset by decreasing or even abolishing council tax or stamp duty if necessary.

"Treasury economists have long accepted the merit of these reforms.

"And the chancellor now realises that reform of the housing market is necessary for macroeconomic stability and entry to the euro.

"It merely remains to be seen if the government has the courage to act," he said.

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Your comments:

Has the gentleman not stopped to think that people may consider not selling at all if they are to be charged for selling in the first place?? and if another cost is added to the already expensive housing market people may consider not buying in the first place
Dean Holliday, UK - England

I would oppose this tax at every opportunity. In effect people would be penalised for setting up a stable family home. It is crazy to tax people for staying in their ideal home.
Diane Douglas, Scotland

How on earth would a 40% capital gains tax force people into selling early? They would be MORE inclined to wait even longer before selling in the hope that, as they are liable for 40% tax on the profit, they might as well try to make as big a profit as possible in order to make it worthwhile. Besides which, most homeowners, whilst selling their house for an assumed profit, still have to account for the fact that the total mortgage repayments plus interest usually far exceed the selling price anyway.
Jamie, Cyprus

It will make people more reluctant to move but this will only mean that more people will commute long distances to work which will make the roads worse. The only way you will reduce traffic on the roads and other transport methods and reduce the housing problem is to build more houses.
Gareth Blades, England

It's a fantastic idea. Profit on house sales is not earned from hard work but by the whims of the property market. And the first £7000 of CGT is exempt anyway.
John Shirley, UK

The housing shortage is caused by a lack of homes altogether in the areas where demand is high. It is basic economics that low supply and high demand lead to increased prices.
Ben, United Kingdom

This means I get increasing tax burdens just when I don't need them by doing nothing other than provide a stable lifestyle for my family. Yet another scheme to make me pay more.
Steve Cheshire, UK

No - it will drive the prices up as people try to maintain their perceived natural gain caused by market forces and exacerbate the slowdown in the housing market. It would be better to abolish stamp duty, or reduce it to 0.5% as for share transfers, and revert to a local tax based on earnings rather than the current council tax.
Tim Eustace, UK

Were this adopted it would mean that anyone who bought their house more than a decade ago would lose so much in tax they could not afford to change houses, and what of houses that have remained in a family for generations. Surely this would have the effect of stopping house sales of all but those who have recently moved? In addition taxing people yearly on the value of their property would bear no relationship to their ability to pay, or is this intended to force people to sell their homes and join the housing list for social housing, as much of the money they obtain from the sale would go as tax?
Reg Elliott, England

Nice idea but not a hope in hell of ever getting adopted...it makes the poll tax look like an extra 1p on a pint of beer
Rob, UK

I think that it may slow down the housing market but will also result in a huge rush for people to sell their houses before any tax is introduced. The downside to this tax is when people want to move up to a bigger house that they may not be able to as 40% of the existing profit will be taken away. Also if the government want to introduce this annual property tax then they should replace council tax with it otherwise house owners are "taxed" twice for the same thing.
Ian, UK

Tax Tax Tax Is that all that governments ever think about. This idea will push people to be even more in debt, and the rich will still get richer and poor will be even more worse off.
Danny, England, West Midlands

Rising property prices are results of a very real shortage of properties, and lack of government intervention in sorting out rows and rows of decaying and uninhabited houses (a drive along A406 only confirms this). Unfortunately, heat to the market comes largely from increase in the lucrative trade in buy-to-let properties, and this is the market which needs to be addressed. Tax on sale/purchase of second+ homes needs to be a lot higher than it is at the moment, and demands on the minimum standards of rented accommodation need to be regulated more stringently. With all this in view, increasing tax on sales proceeds will only make people avoid sales even more.
Suzy Brandes, UK

This is yet another kick in the teeth for the thirty-something generation. We're already facing very high house prices; significant grind to generate sufficient pensions for our retirement now that defined benefit schemes have been closed to us; paltry stock market growth; and low inflation, so our mortgages have to be paid off in real money. These "think" tanks are a menace - they're accountable to no-one and seem to exist in a dream world. Wake up - these meddling schemes affect real people!
Andrew, UK

Haven't homeowners already paid taxes on the wages used to pay for their property? Why should we pay more tax when the children move out and we decide to look for a smaller home and free up some equity as a pension supplement?
Mel Sutton, UK

The only way to reduce house prices is to remove the link between estate agents profits and house prices.
Matthew Killgallon, UK

The first proposal, CGT on the family home, has been extremely unpopular at the ballot box in Australia. While it has been speculated upon from time to time, neither party has had the guts to do it. The yearly property tax is firmly in place in Australia, and this scheme makes renting a lot more affordable, as the tax is paid by the landlord. Landlords benefit as they get tenants staying for longer periods. This would be beneficial to the UK.
Daniel, Australia

Yes, it would slow down the rate in house price increases but this is not the answer. The contributing factors in rocketing house prices - school league tables, the council housing sell-off, greedy private landlords, massive university expansions, delayed parenthood, lifestyle TV, the "flexible labour force", etc, etc - are too numerous to be effectively addressed by one policy. This proposal would unfairly penalise people who make improvements to their homes and, in particular, those of us who can only afford to buy houses in a poor state of repair. Taxing homeowners and developers at 40% of the profit would mean more older-style housing being demolished to be replaced by ugly new-build flats. The most effective policy for this (and most other social ills)? - increase income tax to at least 50% for those earning over £100K.
Kate, Southampton, UK

How do they propose to calculate Repairs/improvements to the property as owners do DIY or pay builders? Also what happens when values go down? Also who will police the valuations? Sounds like more undeliverable/unenforceable bureaucracy to me.
T Taylor, UK

A 40% tax on the annual increase in value of my house would have seen me having to remortgage every year to meet the tax bill, and by now would have increased my mortgage to the point where I could no longer afford to live in my own home. I wouldn't be able to live close to my work, and it would probably force me out of my job. With a growing family, this isn't the future I had in mind for them - I'd be quick to move away from the UK to a more caring government. From the sounds of it, anywhere else would do...
Rod, South East, UK

he logic of the argument as presented in the article does appear to be flawed - why would anyone be encouraged to sell knowing they face a capital gains tax bill in proportion to their profit? But as a wanna-be first time buyer priced out of the market at the moment I do believe that a capital gains tax is necessary to curb price rises and slow the market. In addition I think those who own more than 1 home should pay an elevated council tax on their second home with further elevations for each subsequent home. Multiple home ownership for the masses is not acceptable when a growing number of people cannot even afford one.
Brian S. McIntosh, UK

Can someone please tell me of a way I'm ever going to save for my retirement ? With the likelihood of Pension's being worth next to nothing when I retire, I thought to myself, invest in property, its relatively stable and when I get to retirement age, sell my house(s) and recoup a nice little nest egg to live on in my retirement years. And now you want me to give 40% over to tax !!! Can someone please tell me of a simple way where HM's Government is going to let me look after myself in the future ? After all, isn't that what they want?
Mike Stubbs, England, UK

Has anyone noticed that all we have been talking about lately is taxation! Is the govt trying to tell us something? Is the economy in a worse state than is being talked about? It is clear to all this additional tax is unworkable, and will only serve further to drive skilled people to look elsewhere to get a life!
Alex, UK

Whilst there is an intellectual case for capital gains tax on private housing, it must be far to politically risky to be implemented. Particularly as such a tax change could only apply to gains made after the law was introduced so it would, given current prices, take a long time to have any real economic effect - but the political effect would be felt at the next election. There would also be the risk of distortion caused by an upcoming deadline for the introduction of CGT (remember the phasing out of double mortgage tax relief). As for an annual levy on house prices, as a replacement to the council tax it could be fairer (under the council tax, someone with a house valued at 10 times yours might only be paying double the amount of council tax). A way to avoid the mega-bureaucracy of having to revalue every house in the land every year would need to be found though.
Stuart, UK