TOT: Capital Gains Tax on homes

How do you mean, "if the sellers were to successfully recover the CGT ..."? Do you mean "If sellers continued to be exempt from CGT as they are now?"

The first thing to happen would be a general freeze on virtually all second-hand property sales. Almost everyone who sells a house has to live somewhere else, and after paying CGT they wouldn't be able to afford to buy anywhere, as a large chunk of their sales proceeds would have been taken away in tax.

So they wouldn't sell. Just about the only properties to be marketed would be new builds, and houses where the owner has just died.

Except there'd be almost nothing for them to buy.

(Sorry, unclear) I meant if the sellers were able to add the CGT to the sale price just as the VAT is added to the goods in the shops. If successful, this would increase house prices and therefore be politically unacceptable as well as detrimental to the housing market.

So does this mean that the price of the houses that come to market would fall because prospective purchasers would have less money to spend?

Is the bottom line that it would fossilise the market with no significant effect on house prices?

I have to say this was just a random thought, not a serious suggestion. I suppose what I am suggesting is already achievable by Stamp Duty / Land and Buildings Transaction Tax in Scotland.

The very first thing to argue about is how to index the purchase price. It is indisputable that something higher in value than one Pound Sterling today was one Pound Sterling yesterday. It is apparently acceptable for currency to be deliberately devalued by two percent a year, and it has certainly been more than two percent in all of the last few years.

So to provide even a semblance of fairness, the price to be subtracted from the sale price today is not the original purchase price but that price multiplied by all the inflation since. Quite simply, each of the Pounds used to buy a house was much more valuable than each Pound obtained from the sale today.

The government likes to use the CPI as a measure of inflation, because it is the lowest number that people have been found willing to accept. But the inflation value used to calculate the country's GDP in a value created by the civil service called the Implied GDP Deflator. It is this which should be used to index the purchase price of a house.

CGT is payable on second homes. It is not currently indexed, so one can end up paying tax on a loss in real terms. It was all quite sensible until Gordon Brown "simplified" the tax system and assured us that this would be fine because he had cancelled inflation and the "boom and bust" economy with his astute management of the economy. John

I thought CGT was originally indexed for inflation - checks Wikipedia - yes, looks like until 1998. Then until 2008 there was some relief for long-term assests. I assume both of those were abolished because they drove undesirable behaviour of some kind.

nib

This is the fourth time I have read this point in 2 days.

How do you think they'd deal with the property that 'has', at least partially, increased in value as a result of the seller's endeavours? Home improvements, extensions etc.

Exactly. Its a legal and ethical minefield. If the flat capped whippet wranglers really want to target the rich, don't touch their capital, just put 100% on their I phones and their porsches

The effective acquisition cost would be modified to account for such improvements. The problem is that there has not been any requirement so far to keep records of the costs of improvements to main homes. DIY improvements would be tricky to account for. John

My understanding too. Indexation > taper relief > no relief at all. I incurred some CGT liability recently and the acquisition cost was, well, what it cost.

I believe you have to keep a record of the costs of improvements, as distinct from maintenance costs. The former is offset against CGT but the latter is not.

Don't worry, you might get HMRC's Non-Employee of the year award!

:-)

Tax paid on interest in investments is paid on the interest with no index linking. While we have high inflation and high interest rates that can be considerable - even when the interest rate is less than inflation.

I've probably made a "profit" on my house, but I still own the exact same house. I am no better off. The only way to cash it in is to sell up and live in my car.

I have no doubt that such a scheme would not allow for all the money we spent doing it up either - new roof, new wiring, new heating, new garage...

Andy

Interestingly, although I asked the question purely hypothetically, it was discussed on the radio this morning as a possibility.

snipped for brevity.

I told you already, next will be HMRC's Non-Employee of the Year Award!

I don't know whether this is good or bad :-)

Personally, I would bury it in some deep bog. Preferably under a wind turbine.