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Could you pay capital gains tax on your first property?

Written by Sam Jones on 17 March 2015.

We are looking forward to the final Budget of this Government and, as usual, the speculation about what will be changed has begun. In the last five years the changes for the mortgage market have generally been positive with new schemes such as Help to Buy being introduced to help borrowers get on the ladder.

It offers Government support to many looking for a 5% deposit mortgage but has been criticised by economists for fuelling a housing boom. That was in the 2013 Budget and it has helped 88,000 buy a home.

In the Autumn Statement in December – the mini-Budget – the Treasury overhauled stamp duty to end the hated slab system. This was where the percentage cost of stamp duty applied on the total value when you went over the threshold by a penny. For example if you bought a home at £125,00 0 then you paid no stamp duty but £125,001 then you paid 1 per cent on the total value, so £1,250.

This created distortions in prices and has now been reformed so the different rates only apply above thresholds so at £125,001 you would only pay 1 per cent on 1p not the entire amount.

We were delighted with this long overdue change even if stamp duty does increase sharply for the higher paid hitting 12 per cent on homes worth more than £2m.

In other big housing news from this Government has been the dismal rate of housebuilding that has pumped up prices and inflated London property enormously.

However, overall we have been pleased to see the Government supporting borrowers and homeowners get mortgages and by homes.

So what is happening this time?

One target could be the private residence relief on expensive property. The Liberal Democrats are keen to tax higher value property more while the

Conservative are keen to take on Labour’s mansion tax plans – a 1 per cent annual charge on properties worth more than £2m.

The private residence relief means home owners do not need to pay capital gains tax on their primary property.
On second homes everyone must pay capital gains tax of 28% above the £10,000 threshold but on private homes there has been a long held exemption.

But experts say the Government could end this exemption on homes worth more than £2m meaning anyone owning a house worth more would take a 28% when they sell it.

This would be disaster for many homeowners who will be charge 12 per cent stamp duty to buy their homes, 28 per cent to sell it and a 1 per cent annual charge under Labour.

This would be nothing short of a full fronted assault on expensive homes and a tax bombshell hitting Russian billionaires in central London as well as those with family homes passed down over decades in expensive areas.

The Government has already shown its willingness to cat by charging capital gains tax on the first homes of foreign buyers for the first time last year.

Could it be ready to act again and hit those with expensive homes? With the Treasury’s record of introducing bombshell announcements on pensions and stamp duty then it is something to watch out for next week.

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