This report from UK think tank the Social Market Foundation looks at potential tax changes in response to the cost of Covid-19.
This report, written by leading taxation policy expert Michael Johnson, calls for tens of billions of pounds of new taxes to be levied on increases in the value of homes to ensure the costs of the coronavirus crisis do not fall unfairly on younger people. By imposing a new “Property Capital Gains Tax”, the Treasury could accrue £421 billion over the next 25 years.
Key points: A vast pool of wealth is tied up as home equity: some £5.1 trillion net of mortgage debt, 220% of GDP (pre-crisis). Unsurprisingly this wealth is heavily concentrated amongst the elderly. Principal private residence relief should be scrapped and charge a new property capital gains tax (PCGT) set at (for example) 10% of the difference between property purchase and sale prices. PCGT would be payable at the time of the sale of the main home, and settling an estate following the death of the last living owner. This means the tax would be levied only at the time when cash were available – unlike an annual “mansion tax”. Given that inheritance tax (IHT) is, for most people, a proxy for some form of property tax, the main home should, in future, be excluded from IHT liability assessment. This would halve future IHT receipts. Unlike IHT, a PCGT would be hard to avoid (and evade).
In parallel, Stamp Duty Land Tax (SDLT) on the purchase of the main home should be scrapped. This change, combined with the new PCGT, would effectively move the tax burden of buying the main home from the buyer to the seller. The higher rate of SDLT (for second homes and buy-to-let property) should be retained. This paper includes a conservative high-level assessment of the potential net additional revenue stream for the Treasury from this package. Assuming the new PCGT was set at 10%, these changes would raise £421 billion over the next 25 years, after taking into account the cost of a new incentive for first-time buyers.
An additional £250 billion could be readily generated over the same period by replacing today’s regressive regime of tax relief on pensions contributions with a flat bonus paid independent of tax-paying status. Furthermore, another £125 billion could be cut from Treasury expenditure by scrapping the 25% tax-free lump sum (on pension pot withdrawals). This is excessively generous given that contributions already receive tax-relief.Read Full Report