A survey on Capital Gains Tax vs. Stamp Duty was recently completed where four in ten people say that stamp duty should be scrapped completely and replaced with a capital gains tax on homeowners’ profits.

While it shifts the tax burden from buyers to sellers who have profited from home ownership – this would no doubt be met with a huge amount of resistance from homeowners.  Why? It could lead to them paying a 28% rate on gains – potentially running into hundreds of thousands of pounds.

Current Capital Gains Tax Property Rates

Capital Gains Tax is currently paid on property at rates of 28% for higher-rate tax payers, and 18 per cent for lower rate taxpayers. However, main homes are exempt from capital gains tax through Private Residence Relief.

Yes, a Capital Gains Tax on sellers would mean First Time Buyers get a huge leg up onto the housing ladder as they are a vital part of the housing market.  But, as a homeowner, to be shouldered with tax potentially triple that of stamp duty, it would deter most from moving.  And that’s before you’ve even accounted for a deposit, the legal fees and other costs of moving.

Those at the top of the property ladder achieve long-term gains often running into hundreds of thousands of pounds. This is why the property business is a lucrative one.

The survey also said 59% of respondents believe all first-time buyers should be completely exempt from stamp duty.  First-time buyers are already exempt from any stamp duty up to £300,000.

Of those polled that had moved in the past year – 28% suggested the tax changes would help with the increasing cost of buying a home.

The question is, should the Stamp Duty be changed or tweaked at all?   

It can involve some people paying more than before.  What’s more, tax holidays have been blamed for skewing the market.

Capital Gains Tax Example on a Property

(if Private Residence Relief was scrapped)

To illustrate how this would work should it ever come into effect, below is an example of the Capital Gains Tax owed on a £500k property.

(For illustrative purposed the individual has a salary which has fully used their basic rate band and therefore the gain would be wholly taxed at 28 per cent)

• A property is worth £500,000.
• The property was purchased by the homeowner for £350,000, therefore the homeowners have a capital gain of £150,000.
• Deducting the capital gains exemption of £12,300 we are left with £137,700.

A 28% Capital gains tax on £137,700 would leave homeowners owing a Capital Gains Tax of £38,556.

Stamp Duty Example

Under the current stamp duty land tax rules, a person buying a property for £500,000 would pay stamp duty of £15,000.

Likely to Happen?

Whilst we understand the merit behind the idea for first time buyers – pushing the tax burden onto the sellers as opposed to the buyers – it is very unlikely to happen as there would no doubt be huge resistance from homeowners.  By simply crunching the numbers, it is likely to deter so many people from moving as the costs would surely outweigh the benefits.