The Treasury should tackle potentially unsustainable debt resulting from the coronavirus crisis and raise £421bn ($537bn) over the next 25 years by introducing a tax on rising property prices, a leading think tank has said.
The Social Market Foundation (SMF) warned on Thursday that, without “radical action” to raise significant taxation revenues, the UK could be facing years of stagnant growth that would “blight the lives of future generations.”
A so-called “property capital gains tax” on all homes sold in the UK would see homeowners pay a 10% levy on the increase in the value of residential properties they own since they were last sold.
This could raise hundreds of billions over the next few decades, the think tank advises, noting that it would allow the Treasury to tap into “unearned” gains on homes in the face of “unsustainable” national debt.
Alone, the introduction of the tax would raise £629bn over the next 25 years. Even if stamp duty and inheritance taxes were abolished at the same time, the Treasury would still raise £421bn “to repair the public finances,” the SMF said.
Capital gains on second homes and buy-to-let properties are already taxed, at 18% for basic rate taxpayers and 28% for higher rate taxpayers.
The value of homes in the UK minus the total amount owed on borrowings related to those homes — known as home equity — is worth more than than £5tn, and the tax would largely fall on older people, according to the think tank.
The UK government borrowed a record £128bn between April and June to fund its coronavirus stimulus measures, more than double the previous quarterly record set during the financial crisis, according to the Office for National Statistics.
The borrowing figures do not reflect the new pledges announced by chancellor Rishi Sunak during this month’s summer statement.
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Sunak last week asked the Treasury to review the current capital gains tax system.
“The vast £5tn pool of equity in homes presents the Treasury with an opportunity to pay for the economic damage done by the coronavirus, through the introduction of a capital gains tax on the unearned gains in the value of property,” said Michael Johnson, a former banker and actuary who produced a report on the potential tax for the SMF.
“The alternative is that the young will have to pay for a debt-laden future. They are already hugely disadvantaged, financially, relative to older generations. Asking them to bear the burden of this crisis in the decades ahead would be unfair and unreasonable,” he said.
In a statement, a spokesperson for the Treasury said: “We keep all tax policy under review.”