DJ Alexander has warned that homeowners could be affected by potential changes to capital gains tax and inheritance tax in the October Budget as the Government looks for additional sources of revenue.
Homeowners could face changes to the taxation of property in the October Budget as the Government looks for ways to raise additional revenue, according to DJ Alexander.
The Scottish lettings and estate agency said Labour’s manifesto commitments not to increase personal taxes, VAT or National Insurance could leave the Government looking more closely at wealth and assets as it seeks funding for its proposed £18.7bn national care service.
Prime Minister Andy Burnham has ruled out changes to stamp duty in the Budget, but DJ Alexander said speculation remained around possible changes to capital gains tax and inheritance tax.
The agency pointed to Burnham’s statement that “We have overtaxed labour and undertaxed wealth” as contributing to expectations that property and other assets could form part of the Treasury’s approach.
One proposal being discussed would change the way homes are treated for capital gains tax purposes, potentially applying tax to the difference between the original purchase price and the value of a property at death. DJ Alexander said that if CGT were applied at 24%, long-term homeowners whose properties had substantially increased in value could face significant liabilities through their estates.
The agency also pointed to speculation that inheritance tax could be replaced by a flat-rated 10% charge to help fund the national care service.
It said the average liability for an inheritance tax-paying estate had risen by 9% over the past year to £231,000, while 4.72% of deaths were now affected by the tax.
Inheritance tax receipts have risen from £2.9bn in 2009-10 to a projected £9.1bn in 2025-26. The Office for Budget Responsibility expects the amount collected to reach £14.5bn by 2030-31, affecting 10% of estates.
David Alexander, chief executive officer of DJ Alexander Scotland, said: “These measures appear to be a simple solution to revenue raising for a government hampered by its own election pledges in having limited means to raise additional resources. While it looks like a tax on wealth – which is a popular proposal – it is clearly going to impact on many more people in society as property values increase and thresholds remain frozen.”
“The problem is that introducing CGT on the sale of homes will be catastrophic for homeowners. They will have assumed that their life of homebuying, of saving, and investing will have come to nothing on the stroke of a pen and that their relatives will lose a substantial percentage of the estate to more taxes.”
Alexander continued: “The impact on the housing sector could be catastrophic with people selling up prior to the deadline for CGT implementation or, if they are able, putting off selling their home until after the next election when they might hope a more sympathetic government is in power. Either way the market will be in chaos for years if such measures are introduced.”
“There will also never be the tax take that is forecast. Every government assumes a linear income is gained from such measures, but this is rarely the case as individuals change their circumstances and behaviour depending on how it impacts their finances.
“However, additional taxes like this could place a tremendous strain on many people including the elderly who may be asset rich but cash poor because they have owned a property for many years which has gone up in value.”
Alexander concluded: “The amounts raised from this transformation of property taxes are difficult to quantify and problematic to collect. The truth is that most peoples’ estates are the result of a lifetime of work and saving and all this effort could be destroyed by new taxes introduced in the budget.
“People plan their retirements over decades, and these plans could be completely upended with a change of policy. A simpler solution would be to review the manifesto promises and implement universal increases which would immediately produce billions in revenue. Without doing this the Government will continue to look at ‘wealth’ as it is held in property and assets as a source of revenue to fund its policies.”
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