Homeowners should pay 40% tax on profits
The independent think tank, the Social Market Foundation (SMF), is suggesting that homeowners should be taxed on the profits from the sale of their homes.
The SMF believes that taxing homeowners when they sell would reduce the volatility in the housing market.
The think tank argues that sellers should pay 40% capital gains tax which they believe would improve the shortage of properties on the market. The SMF argues that homeowners are hanging onto their properties in the belief that by holding on they will sell their house for more.
The SMF claims that people will be encouraged to sell as their property value increases because their tax bill would also be increasing.
By taxing house selling profits at 40% people would have less money to buy their next home, reducing the upward pressure on the housing market.
Author of the SMF’s report, Tom Startup commented, ‘Capital gains tax on home-ownership and an annual property tax proportional to the market value of the property would be necessary to reduce volatility and restore building levels.’
The SMF claims that the increase in tax could be offset by reducing or abolishing council tax or stamp duty.
The SMF argues that these reforms would help the Treasury meet its plans to reform the housing market. The Chancellor highlighted at the beginning of the month that one of the major barriers to entry to the European Single Currency was the inflationary effect of the UK’s housing market.
Reducing the upward pressure on house prices would make it easier for the UK to accept the European interest rate without a large upward shock to house prices.
Mr Startup added, ‘Treasury economists have long accepted the merit of these reforms. And the chancellor now realises that reform of the housing market is necessary for macroeconomic stability and entry to the euro. It merely remains to be seen if the government has the courage to act.’
