To think removing the CGT exemption for own homes would be the fairest way to solve government debt problem?

[Handsoff7]

UK housing Wealth was estimated at £5.2 trillion in January.

This is up £1.6trillion since 2003

savills

Based on market movements it should have reached at least £5.6 trillion by now.

Some big rises happened pre 2003 as well so I would estimate that there is between £2-£3trillion of unearned, untaxed wealth.

If we applied CGT to this, it could raise hundreds of billions for the treasury. Taxed at 40% we could nearly eliminate the national debt (very gradually as houses were sold).

Even at the lower end it would raise more than any other tax measure you can think of.

It would also be much more fair than a mansion tax or hike in income tax as it would only tax the increases in value - the 100k "earned" for being at the right place at the right time.

AIBU?

This would mean people are less able to take new jobs, and it would stagnate the housing market, and perhaps the economy more generally. Hardly anyone would be able to move house.

If my house has gone up in value from £180,000 to £330,000, and then I need to move house to take a job in a different (but similarly priced) area, then the house I need to buy will have also gone up by a similar amount, so if I'm taxed on my gain at 40% I have £270,000 left, so I can't move to a similar sized house without having saved a huge amount. It would only be affordable to downsize your house.

Malice that sounds sensible - though I'm not sure about "allow for inflation" - why? Why should I be able to earn, say, 2.5% profit on my house tax free just because prices on other things have risen at that rate?

I would rather see the CGT kick in at a certain level eg you get the first 15k of profit tax free.

I agree with "allow for capital expenditure" - they do this in other countries, where CGT is applied to house profits. People keep all their receipts from building work/new kitchens etc so that when they sell, that amount is knocked off the profit they pay tax on. This would also have the side benefit of discouraging "cash in hand" building work.

Minipie Why wouldn't you allow for inflation? That stops the asset from devaluing in real terms.

I can't see that any govenrment would have the appetite to do it. Think of the impact it'd hae on the housing market immediately prior to implimentation.

But why shouldn't the asset devalue in real terms? Everything else does.

I agree, I doubt any govt would ever do it.

The £80k is totally unearned income. It's bizarre that we tax earned income that people work hard for, and we don't tax this profit which is totally unearned and depends purely on whether you bought in the right place at the right time.

But what if the person has spent 80k on home improvements while they've lived there?

Yes, I agree that amounts spent on home improvements should be knocked off the taxable amount - malice said so and I agreed.

Totally agree. Much better to tax unearned wealth than to tax income. It is crazy that someone in work earning £20k doing a shitty job they hate pays 20% tax but someone who bought a house for £50k that is now worth £500k doesn't have to pay any tax on those unearned gains of £450k. No wonder so many slumlords landlords want to buy houses as a btl "investment". It is the quickest way to easy, unearned, untaxed riches! Better than playing the lottery for many!

What about interest? Most people pay for houses with mortgages. So if you buy a house for 200k, and take 25 years to pay for it, even with fairly low interest rates over the whole period, say 4%, you actually pay over £310k.
So yes, if you then sell it for £310k, you've "made" £110k, tax free, except you've already paid that money out in interest. Oh, and every other house has gone up in price as well.

Isn't this the big tax advantage for BTL, that you can claim the interest as a cost (and you then pay CTG on the profit when you sell). Why would your own home be different - and if you discounted the interest lots of people would have very little profit to pay tax on.

Or am I misunderstanding? Perfectly prepared to accept that I am, it's been a testing morning...

I'd abolish tax relief on BTL interest before I even began to consider CGT on principal private residences.

You make an interesting point MsRinky but I think that anything which enables us to move from viewing a home/housing as an investment to a utility (i.e. something to be used and enjoyed) is a good thing.