Is it time to charge capital gains tax on homes?

The government just might be warming to the idea of cutting the 100% capital-gains tax exemption that applies to homes, says Merryn Somerset Webb.

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We should cap the 100% capital-gains tax exemption that applies to homes

We've often written here about housing taxation, and said along the way that we'd like to see stamp duty dumped on the basis that it is a huge barrier to labour mobility (the average household moves far less often now than it did before Gordon Brown started raising stamp duty rates).

But, as we know that everything ends up taxed one way or another, we have also said that we would favour a capital-gains charge over primary homes. As long as it was indexed to inflation (and perhaps to house price inflation) we can't really see any problem with it. Particularly at the very high end, where those who bought at the right time in the right place in the south are finding that the tax-free capital gains on their houses add up to more than the heavily taxed lifetime earnings of all the occupants of said houses.

We haven't gained much traction with this thought. So I was interested to see it discussed by Richard Dyson in the Telegraph a few weeks ago.

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He points out that David Cameron's (very bad) idea to offer a special £175,000 ineheritance-tax exemption per person for the "family home" introduces the idea of a "specific but limited tax break applying to people's homes".

That might be something that is a "trigger for policymakers to look at the other property related tax break the vast elephant in the room" that is the 100% capital-gains tax exemption that applies to homes. Why should that not be capped too?

You can read our previous arguments on this here. But as Dyson also notes, it "would fit with some of George Osborne's previous moves." Just look at the way he has slashed, and intends to slash again, pensions tax relief for high earners.

I am not as convinced as Dyson that this will happen politicians fiddle with all housing benefits at their peril but I suspect that given the ongoing boom in London house prices and the fiscal imperative to have a go at raising more money, he is right to think that it is finally under discussion at the Treasury.

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.