Tens of billions of pounds of new taxes should be levied through a Capital Gains Tax imposed on main homes, not just additional properties.
That’s the view of a think tank, the Social Market Foundation, which says that tax on the increases in the value of homes would ensure the costs of the Coronavirus crisis do not fall unfairly on younger people.
The foundation - set up by Conservative peer Lord Danny Finkelstein - says that without radical action to raise significant extra tax, Britain faces an unsustainable national debt and stagnant growth that will blight the lives of future generations.
This is the latest of a number of proposals from groups and individuals in recent days, advocating CGT on main homes: many agents have expressed their dismay at the idea, which they say could deter owners from selling - instead they would wait for a change of government which may remove such a tax.
Specifically the SMF, in a report out today, wants the Treasury to raise £421 billion over the next 25 years by imposing a new Property Capital Gains Tax on all homes sold in the UK, the report says. In return, stamp duty could be scrapped.
The new Property CGT could be set at 10 per cent of the increase in the value of the property since it was last sold, the foundation suggests.
Written by Michael Johnson, a former banker and actuary, the SMF report says that the fairest place for the Treasury to levy new taxes is unearned gains on residential property.
It calculates that taking account of mortgage debt, the equity in UK homes is worth more than £5 trillion pounds, a figure that has more than doubled in the last 20 years.
Chancellor Rishi Sunak last week ordered a Treasury review of capital gains tax, looking at how capital gains are taxed compared to other types of income.
The SMF said that unearned gains on property are a better target for new taxes than workers’ earned income.
Levying a new tax on the gain in property prices when sold would raise £629 billion for the Treasury over 25 years, the SMF paper estimates.
Some of this should be used to abolish stamp duty and inheritance tax on property, leaving the Treasury with £421 billion to repair the public finances.
The foundation admits that the new tax would fall largely on older people, who own most of Britain’s property, and those who inherit property and then sell it.
Based on ONS data, Johnson calculates that the average pensioner household has net property wealth of £272,900, compared to £53,700 for those aged between 25 and 34.
In total, pensioner households own £2,149 billion in property equity.
“The vast £5 trillion pool of equity in homes presents the Treasury with an opportunity to pay for the economic damage done by Coronavirus, through the introduction of a capital gains tax on the unearned gains in the value of property” says Johnson.
“The alternative is that the young will have to pay for a debt-laden future. They are already hugely disadvantaged, financially, relative to older generations. Asking them to bear the burden of this crisis in the decades ahead would be unfair and unreasonable.”
The SMF report follows last week’s projections from the Office for Budget Responsibility showing that the costs of the Coronavirus crisis, coming on top of weak public finances, put Britain on course for record-breaking levels of debt.
James Kirkup, director of the Social Market Foundation, adds: “These reforms are bold, far-reaching and could be politically controversial: the older voters who own most British property are a powerful group. But the scale of the Coronavirus crisis and the unprecedented outlook for the public finances mean that responsible politicians of all parties must be prepared to embrace new ideas and take bold action.
“Failure to act risks severe economic and social harm. A post-crisis era where the costs of the crisis fall more heavily on the young than the old could strain the social contract between the generations to breaking point.”