The UK government’s rumored plan to impose capital gains tax on high-value homes has ignited a firestorm of criticism. As the Treasury seeks to plug a staggering £41 billion fiscal hole, leading economists and property experts warn the controversial move could stall the housing market, cost the government money, and trigger an exodus of wealth.
The Treasury’s Radical Proposal: A Tax on the Family Home
The UK’s long-standing tradition of exempting primary residences from capital gains tax (CGT) appears to be on the chopping block. Reports suggest that Chancellor Rachel Reeves is considering ending the tax relief for homes above a certain threshold, a move that could generate significant revenue for a government facing a massive public finance shortfall.
The proposal, which a Treasury minister notably declined to rule out, would hit the owners of high-value properties when they sell their family home. Under the mooted plan, higher-rate taxpayers could face a 24% levy on any gain in their home’s value, while basic-rate taxpayers would pay 18%. While the specific threshold remains under consideration, a starting point of £1.5 million would impact around 120,000 higher-rate taxpayers, potentially leading to a tax bill of nearly £200,000 for some.
This radical approach comes as the government’s options for raising cash are limited. Having ruled out increases to income tax, national insurance, and VAT, the Treasury is under pressure to find a way to close a daunting £41 billion gap identified by the NIESR economic think tank.
Economists Warn of “Hopeless” Consequences
The idea has been met with incredulity from some of the UK’s most respected economic voices. Paul Johnson, the former head of the influential Institute for Fiscal Studies (IFS), was “staggered” by the reports. He argues that the policy makes “no sense” and could prove to be a fiscal own goal.
Johnson’s core concern is that imposing CGT on properties while keeping stamp duty would “gum up the entire housing market at the top end hopelessly.” People would simply stop moving, hoping for a future government to reverse the policy. This market paralysis could cause the Treasury to lose more money in stamp duty revenue than it gains from the new CGT. Johnson advocates for a comprehensive overhaul of housing taxation, arguing that council tax is too low on expensive properties and stamp duty is a “disaster area” that needs to be addressed in conjunction with any CGT changes.
An Exodus of Wealth and a Frozen Housing Market
Property experts and financial planners are echoing these warnings, citing a range of practical and economic repercussions. They fear the tax could create a “cliff edge” where a property valued at £1.49 million is exempt, while one at £1.5 million faces a six-figure tax bill.
For many homeowners, especially older people who purchased their houses decades ago, the tax would be a major deterrent to downsizing or selling. As one financial adviser noted, they would be “daft to sell” and incur a huge liability, opting instead to hold on to their homes until death to pass them on tax-free.
The tax would also have a clear geographical bias. Analysis from Rightmove reveals that over 10% of homes for sale in London would be affected by a £1.5 million threshold, compared to just 1.6% outside the capital. Critics argue this would “kill off the upper end of the property market” in the Southeast and add to a reported exodus of super-rich individuals already concerned about the UK’s tax policies.
Tory leader Kemi Badenoch has already seized on the issue, blaming the government’s “disastrous economic mismanagement” for the proposed tax raid. As the government prepares for its autumn budget, it must weigh the potential revenue from a “mansion tax” against the very real risks of a stalled housing market, political fallout, and a potential loss of money.