The National Institute for Economic and Social Research has said that the current system of taxing households and capital values is possibly “the worst of all worlds” and should be replaced by something fairer and transparent. It believes imposing capital gains tax on sales will discourage unstable house prices and could be used as an alternative for stamp duty.
NIESR macro-economic director Angus Armstrong has said “We tax the purchase of houses by stamp duty which limits the efficient allocation of housing and labour mobility”.
He continues “Unlike other assets the income and capital gains are untaxed. No attempt is made to tax the excess returns on housing which accrue because of its relatively fixed supply. Owners are happy to under-occupy, many households are buying second properties and the older generation are not releasing equity, but leaving owned property towards the end of their life. This suggests the market is becoming less efficient in allocating housing on a basis of needs”.
He says a tax on capital gains levied annually or at the point of sale would “reduce the gains in an upturn and losses in a downturn, so dampening house price cycles.”
Not everyone will agree with this suggestion, as it may cause some to believe this will only limit or prevent people from selling.