That’s not me saying it. Nor is it Reform, the Tories or any of the party’s growing army of critics. The warning comes from Dan Neidle of Tax Policy Associates – a tax expert known for being thorough, left-leaning and sympathetic to Labour.
Neidle isn’t against new taxes. But he is against hopelessly bad ones that cause more harm than good. And that’s exactly how he sees the latest ideas linked to Rachel Reeves.
Reports suggest the chancellor is weighing up not one but two property taxes. The first would slap capital gains tax (CGT) on sales of main homes. Not second homes or investment flats, but homes. While it may start by targeting properties worth £1.5million or more, history shows that once set, UK thresholds rarely rise. More and more homeowners would get dragged in.
It would be a disaster for pensioners who bought their homes decades ago, and risk facing a massive bill at the end of it.
The second proposal is an annual property levy of 0.54% on homes worth £500,000 to £1million, rising to 0.81% above that. On a £750,000 house, that’s £4,050 a year. Again, the thresholds won’t change for years or decades.
Neidle calculates that CGT on homes could in theory raise £31billion a year, making it tempting for Reeves. But in practice it “makes no sense”.
Neidle’s sums show why. For a £2million house is sold at a £750,000 gain, the CGT liability would be a massive £180,000. He noted that CGT is wiped-out at death, “so people sitting on large gains have a powerful incentive to never sell”.
Slapping CGT on homes could slash property transactions by almost half, he said. “If someone at the top of a chain doesn’t sell, nobody else in the chain can complete.”
Families would be trapped in the wrong homes. Workers would find it harder to move for jobs. Reeves might not even raise any extra revenue.
Neidle also examines the implications of a CGT raid on lower value homes. Someone who bought a detached house for £250,000 in 2010, now worth £440,000, would face a paper gain of £190,000. Taxed at 24%, that’s a £45,000 bill, which he rightly calls “unaffordable for most people”.
Most strikingly, he notes “no other developed country does this”. Not France. Not Germany. Not Australia. Not Ireland. He adds it would also be a form of retrospective taxation, punishing people for choices made years ago.
If Reeves presses ahead, she’ll go further than any Chancellor before her. The political backlash could be ferocious.
The idea of an annual charge, lifted from think tank Onward, would bring problems too.
Intended to replace council tax, most owners would end up paying more. Neidle said: “Telling three-quarters of average households that their annual property tax is going to increase will be a hard political sell.”
You’re telling me. With both these taxes, pensioners who simply stayed in their houses longest would be hit hardest, and they’re most likely to vote (although not Labour).
Reeves talks endlessly about “fixing the foundations of the economy”. But these plans look more like twin wrecking balls. CGT on home sales would lock people into properties and distort the market. An annual charge would hammer the middle classes.
No other chancellor would give these measures house room. But Rachel Reeves always has space for another daft idea. Expect more.