Capital gains tax on houses ‘could lose Treasury money’

Rachel Reeves's plans to levy a “mansion tax” on high-value properties make no sense and could cause the Treasury to lose money, one of Britain's leading economists has warned.

- ARCHIE MITCHELL MILLIE COOKE

Paul Johnson, the former director of the Institute for Fiscal Studies (IFS), told The Independent he was “staggered” at reports that the Treasury is considering such a move, saying it could “block up the entire housing market”.

His intervention came as mortgage brokers and financial planners rounded on the chancellor after reports that she is considering hitting the owners of expensive properties when they sell to plug a £40bn hole in the public purse.

The mooted plans would mean higher-rate taxpayers paying 24 per cent of any gain in the value of their home, while basic rate taxpayers would be hit with an 18 per cent levy. Currently, capital gains tax is not paid on the sale of primary residences.

The threshold is still under consideration, sources told The Times, but a £1.5m starting point would hit around 120,000 homeowners who are higher-rate taxpayers. with capital gains tax bills of £199,973.

Mr Johnson called for a major overhaul of housing taxation as a whole, warning that levying capital gains tax on high-value properties at the same time as stamp duty would mean “no one would ever sell their properties”.

"I think there are all sorts of practical problems with it. It would gum up the housing market at the top end hopelessly. So I think, personally, it's a non-runner. I think it would be very hard to design in a way that would raise significant money, and indeed, it could lose the Treasury money. Because, you know, you could lose the money you're currently getting in stamp duty.

“I just can't believe that they're considering it. I’m staggered that they’re flying this flag. It, to me, makes no sense.”