WHAT IMPACT would the tax cuts proposed by the Conservatives’ Tax Reform Commission have on housing?
George Osborne and David Cameron were careful to stress that they wouldn’t necessarily accept all the recommendations. It seems a reasonable assumption that tax cuts aimed at low earners financed by new green taxes will be high up the agenda but it is the taxes on capital in chapter 8 of the report that could have the most impact on housing.
The commission wants to scrap inheritance tax and reform capital gains tax at a cost of £2.6 billion a year. It argues:
‘Inheritance tax should be abolished. It should be replaced by the reformed capital gains tax which would become chargeable on death, as is the case in Canada. This would ensure that all comparatively short-term gains would be chargeable but that assets held over the long-term (and primary residences) could pass heirs without taxation. This would take primary residences out of all capital taxation, with the exception of stamp duty on property.’
Capital gains tax would then become:
‘A tax on short-term capital gains only: no capital gains tax should be imposed on a gain arising on disposal of an asset which has been held for over ten years. For shorter periods of ownership the gain would be tapered so that 90 per cent of the gain is taxed after one year’s ownership, 80 per cent after two years and so on.’
The proposal on scrapping inheritance tax will be welcomed by home owners looking to pass on the value of their home to their children and by mortgage lenders who have pointed out the effect of the government’s failure to uprate the threshhold in line with house prices. Buy-to-let investors will also be pleased by the prospect of being able to pay less capital gains tax.
The losers will almost certainly be young first-time buyers. Half of those under 30 already rely on help from their families to buy. What will happen to those who don’t have the tax-free proceeds from the sale of family homes to help them out?
The report does not mention reform of stamp duty on residential property or the council tax.