UK Capital Gains Tax changes

Posted on January 7, 2015 by Guest Writer
New Build Houses for sale in an English Street

What is Capital Gains Tax (CGT)?

When you sell an asset such as your holiday home for more than you originally paid for it, you make a capital gain, for which Capital Gains Tax (CGT) must be paid. CGT is not normally payable on your main home. However, you will be charged if you develop it to make money. Perhaps, for example, you decide to make a profit by converting part of it into flats to rent out or you sell a section of your garden. If you live away from “home” for more than a certain time frame, you could also be liable for tax on any profits you are making. The UK consumer body Which? provides full details on the current ins and outs of what to expect as a property owner.

UK Capital Gains Tax on main residences

Now the government is proposing that CGT should be paid on main residences as well as second homes. Bad news for many owners who could now become liable for tax on profits they make when they sell up. The proposal from Kate Barker, former member of the Bank of England’s Money Policy Committee and author of the book “Housing: Where’s the Plan?” has put forth a strong argument for enforcing CGT on property which, until now, has been restricted mainly to second homes only.

The case for applying it to main residences is arguably strong. In the book she explains: “Charging CGT on gains on our main residences would bring the taxation of housing more into line with other assets, and it would tend to discourage over-investment in housing.”

Calculating investment

Barker goes on to explain: “Changes in house prices often result from public policy: restrictions on neighbouring land, transport links, or the quality of a nearby school, for example. It is odd not to tax these gains, which the homeowner has done nothing to earn, but charge CGT on the profits from selling a business enterprise. But it would undoubtedly face very strong public, and therefore, political, opposition.”

It remains to be seen whether or not this bill goes through but if it does, CGT on main homes could have a very real impact on anyone selling up with a view to making a tidy profit. The reform is expected to lower house prices and reduce the incentive to hold on to a property for investment purposes. For the less well off however, it would give fairer chances for anyone not lucky enough to inherit wealth to buy into the housing market. In fact, Barker firmly believes the move could be a very effective way to tackle the social consequences of under-supply of housing in the UK.