Thursday, 28 June 2007Brown ponders plans to tax all house sales
The government is exploring plans to introduce capital gains tax on the sale of homeowners' principal property of residence.
At present homeowners escape capital gains tax on their principal private residence (PPR), but Gordon Brown, the chancellor, is understood to be examining plans to bring Britain into line with Germany, France, Sweden, Finland and most other European states.
In Britain, properties that are not a principal residence are subject to 40 per cent tax when they are sold. But in Germany CGT is charged on all capital gains considered speculative, which means any property sold within 10 years of acquisition.
Patrick Cannon, the head of stamp duty at PricewaterhouseCoopers, the accountant, said: "We know he [the chancellor] is eyeing up the housing market and we know he is looking especially closely at taxing people who make speculative short-term investments in the housing market. Not only would it raise money for the chancellor's flagging finances, but it would also help him calm the property market."
Cannon admitted that Treasury officials have discussed such a levy with tax experts in the private sector. The industry is alive with rumours of this tax, he added.
Kevin Griffin, the head of stamp duty at Ernst & Young, described the tax as a "very real possibility". He said: "If Britain does enter the euro, we will lose our control of interest rates and therefore the housing market. The chancellor is inevitably trying to find ways he can exert control on the market."
Anita Monteith, a tax consultant at the Institute of Chartered Accountants, said: "The Treasury is very conscious that people are accruing enormous wealth from property price rises. We know this is on the chancellor's agenda . . . It's only a matter of time."
CGT on a primary residence would fit in strongly with Brown's ambition to temper property market volatility.
The report Fiscal Stabilisation and EMU, one of the 18 additional studies which supported the chancellor's decision last June not to join the euro, reads: "There are a wide variety of property taxes across the world, with a number of them exhibiting stabilising characteristics."
Accountants would be surprised if the chancellor opted for the German system. Cannon said: "It's more likely that Brown would consider the French model. There the rate of tax you pay falls the longer you have held the property."
Meanwhile, Michael Quinlan, the head of stamp duty at Deloitte, agreed that the idea "had been bandied about", but questioned whether such a tax would be brought in in the near future. "Politically it could be very damaging," he said.
But experts reckon that there are ways to minimise the political fallout of the new tax. They said that a prudent way would be to introduce the tax for properties valued at £500,000 and above. Cannon said: "As properties steadily increase in value, more properties would fall under the tax. That would not disgruntle many Labour voters."
There are also concerns that the chancellor could be preparing to tax successful applications for planning permission. This type of tax was introduced by the previous Labour government in 1974, but abolished by the Conservatives in 1985.
The Treasury was not returning calls.www.telegraph.co.uk/money |