October, 2024
Rachel Reeves, the Chancellor, is not planning to increase capital gains tax (CGT) on the sale of second homes.
According to The Times, while capital gains on the sale of shares and certain other assets, currently taxed at 20%, may see an increase of several percentage points, this will not apply to second homes.
Reeves has reportedly decided to maintain the current CGT rate on the sale of second homes and buy-to-let properties due to concerns that a rise could result in a loss of revenue.
Previously, when the Conservatives reduced the rate from 28% to 24%, the Office for Budget Responsibility projected an additional £700 million in revenue from increased property sales.
There are worries within the government that raising CGT on second homes could reduce overall tax receipts, as it might discourage transactions. More than half of all capital gains come from the sale of shares, while property sales account for only 12%.
It is believed that ministers discussed the potential outcomes and concluded that people might delay selling their assets to avoid higher tax rates.
One government source indicated that the potential revenue from raising CGT would be in the "low billions."
Reeves is reportedly working on plans to generate around £40 billion through a combination of tax increases and spending cuts, aiming to prevent a return to austerity and avoid real-term cuts to government departments. The majority of this funding is expected to come from tax rises.
Stuart Adam, a senior economist at the Institute for Fiscal Studies, commented that simply raising CGT rates would have limited impact and could harm the economy. He stressed that any rate increases should be accompanied by reforms, such as removing inefficient tax reliefs and allowing more generous deductions for investment costs and losses.
