Graeme Privett, Partner in the HaysMac Private Client team, was today quoted in Eprivateclient. His concern is shared by many onlookers, as we hold our breath to see what Rachel Reeves will announce in the upcoming Autumn budget.
In a move that has sent ripples through the private wealth and property sectors, Chancellor Rachel Reeves is reportedly considering a truly radical change to the UK’s taxation landscape. Namely, the introduction of Capital Gains Tax (CGT) on main residences.
For decades, the UK tax system has upheld a fundamental principle, Private Residence Relief, which exempts homeowners from CGT when selling their primary residence. This relief has not only encouraged homeownership but has also provided a vital financial planning tool for individuals and families, particularly those approaching retirement. The proposed removal of this relief for properties valued above £1.5 million threatens to upend this long-standing norm.
The Mechanics of the Proposal
Under the reported plan, homeowners selling properties above the £1.5 million threshold would face CGT on the gain in value. Higher-rate taxpayers could be liable for 24% of the gain, while basic-rate taxpayers would pay 18%. Treasury estimates suggest that around 120,000 households could face average CGT bills of nearly £200,000.
While the policy is framed as a measure to plug a £40 billion fiscal gap, its implications extend far beyond revenue generation.
Who Will Be Affected?
The impact will be felt most acutely by:
- Long-term homeownersIndividuals who have lived in their homes for decades and seen substantial appreciation, often due to inflation and regional development, will be disproportionately affected.
- Pensioners and downsizersMany retirees rely on the equity in their homes to fund later life. Taxing this equity could discourage downsizing, freezing larger homes in the market and reducing housing mobility.
- Middle-class families in London and the South EastIn regions where property values have soared, even modest homes may breach the £1.5 million threshold, dragging ordinary families into the tax net.
The Practical and Political Challenges
From a technical standpoint, implementing such a tax raises significant questions:
- RebasingWill gains be calculated from the date of acquisition or rebased to the date of the law change? Without rebasing, homeowners could face tax on decades-old gains, many of which are not reflective of real economic profit.
- Market distortionA hard threshold at £1.5 million creates a cliff-edge effect, incentivising artificial pricing and discouraging transactions near the limit.
- Liquidity concernsUnlike other assets, property gains are often unrealised until sale. Taxing these gains could force homeowners to sell or borrow against their homes to meet tax liabilities.
A Step Too Far?
This proposal risks undermining the very fabric of UK homeownership. The British public has a deep emotional and financial attachment to their homes. Introducing CGT on main residences not only breaks a long-standing tax covenant but also risks destabilising the housing market at a time when affordability and mobility are already under strain.
Moreover, the policy may prove counterproductive. By discouraging sales, it could reduce overall transaction volumes, thereby shrinking the tax base and limiting the very revenue it seeks to raise.
Final Thoughts
While reforming property taxation to address inequality and modernise outdated systems is a worthy goal, targeting primary residences with CGT is a blunt instrument. It risks penalising prudence, punishing long-term ownership, and creating unintended consequences across the housing market.
