Rachel Reeves has been warned the policy makes no sense (Image: Getty)
A Labour-supporting tax expert has warned Rachel Reeves that the proposed family homes tax raid could end up massively backfiring, and lose her money. Dan Neidle, a prominent commentator, took to X this afternoon to warn that the proposal to end Capital Gains relief when selling a home would “slash transactions, gum up housing chains, and could even collect less tax overall”.
This week it emerged that the Chancellor is working up plans to hit homeowners with enormous tax bills when selling up, as she attempts to plug a ￡50 billion blackhole ahead of the Autumn Budget. This would include abolishing the current exemption from Capital Gains Tax when selling a house, landing individuals with a tax bill of between 18% and 24% of the value gained of the property while owned. It would cause Britain to be a notable outlier, as most major Western economies do not tax the value accrued on a home when sold.
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Dan Neidle warns the policy could backfire (Image: Dan Neidle)
Mr Neidle condemned the policy as nonsense, arguing it is “the last thing we should do” to add yet another tax to moving homes.
He warned that the proposed CGT on selling a home could end up being even more damaging to the housing market than the existing Stamp Duty levies when purchasing a home.
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He explained: “Imagine someone who bought an average detached house in 2010 for ￡250k. It’s now worth ￡440k.
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“They want to move to another house of about the same value – perhaps to take up a job elsewhere, perhaps to join their family. Today there’s stamp duty of ￡12k – and that’s already a problem.
“But if CGT applied there would be a gain of ￡190k and capital gains tax of about5 ￡45k. For most people that would be unaffordable.”
Mr Neidle pointed out: “No developed country in the world does this”, including France, Germany, Australia and Ireland.
Mel Stride has called on Ms Reeves to rule out the so-called family homes tax (Image: Getty)
Switzerland and Sweden do have a system in place, but exempt those selling their home to move into a new one, while the United States’ tax doesn’t kick in until $250,000, and allows deferrals for investment properties which many use as an easy loophole to avoid the tax.
He also explains that the tax could end up losing the Treasury money, using the example of a ￡2 million house sold at a ￡750,000 value gain, which would result in less tax being raised by Ms Reeves due to the deterrent effect of selling up in the first place.
The blog post also warns those on the left demanding the tax, which would not kick up until a home is worth more than ￡1.5 million, that it would effect those buying much less expensive properties as well due to a knock on effect in the chain.
Mr Neidle instead says Ms Reeves should look at replacing stamp duty and council tax with a modern land value tax, which would avoid deterring transactions and prevent the abolition of stamp duty triggering a rise in prices.
His warnings were echoed today by the former director of the Institute for Fiscal Studies (IFS) who agreed that the proposal could end up losing the government money.
Paul Johnson also warned that the policy would “block up the entire housing market” as “no one would ever sell their properties”.
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“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."
A Treasury spokesman said: “The best way to strengthen public finances is by growing the economy, which is our focus. Changes to tax-and-spend policy are not the only ways of doing this, as seen with our planning reforms, which are expected to grow the economy by ￡6.8bn and cut borrowing by ￡3.4bn
“We are committed to keeping taxes for working people as low as possible, which is why at last autumn’s Budget we protected working people’s payslips and kept our promise not to raise the basic, higher or additional rates of income tax, employee national insurance, or VAT.”
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