NHPAU & CGT

Today sees the launch of the National Housing and Planning Advice Unit, NHPAU. (In passing, is it not high time we had a Tax Planning Advice Unit, otherwise known as T'PAU ?)The NHPAU is a new government agency whose objects are self explanatory. NHPAU reports that the next generation of house buyers will face house prices equivalent to ten times the average income, thereby putting home ownership out of the reach of many and stopping social mobility in its tracks. The 10:1 ratio is being projected for 2026, although, in the greater London area , that ratio would appear to already now be a reality.

Whilst the report rightly says that demand for housing is growing and, unless action is taken, pressure on the market will only get worse, this does appear to be nothing more than stating the blindingly obvious. Planning laws do, of course, need review, and, possibly, lending policies also, but there remains the ever increasing mystery over why no high profile commentators have expressed any concern over the effect of tax law.

In particular, the capital gains tax rules for the principal private residence exemption remain absurdly generous and any knowledgeable tax adviser will attest to the fuelling of market sentiment which these laws have encouraged. Further, the unrestrained pouring of wealth into bricks and mortar must have a negative effect on investment into economically productive alternatives such as small and medium business. After all, why should anyone bother with troubling to do real work (combined income tax and national insurance 50%) when, in the alternative, all you have to do is buy a residential property, sit at home watching telly all day, and let the market do the "work" for you (total tax not more than the 4% SDLT).

In extremis, there may now be an argument to say that the PPR exemption should be abolished altogether, whether it be in one fell swoop or gradually. The relief was, after all, introduced in an era when the housing market was very different from today and what makes homeownership so special that the proprietor should benefit from a windfall which is tax free anyway ?

But, more sensibly, and if only to sidestep the predictable ill informed rant the Times will otherwise spew out via its financial pages, might not just one particular piece of legislation now be worthy of targeting ?

In an era where "fair share" and "closing the tax gap" are banded about at will by politicians and lobbyists, quite what is the justification for the retention of the latter part of section 223(1) TCGA 1992. The attribution of exemption to the last 36 months of ownership of a former residence is a relieving measure intended to cover the period after which a homeowner may move out of their residence but experience a delay in selling. That delay could be for any reason, and there is no motive or purpose test required (and so long as the property was genuinely acquired as a home, section 224(3) is of no application).

There was, however, never an intention that the legislation was enacted to encourage the retention and the doubling, or tripling up, of home ownership with a view to the enjoyment of multiple windfall tax free gains. Further, it must now be a very long time since any sensibly marketed property took more than 3 to 6 months to be sold, so why should the legislation provide for a timeframe which is as long as 36 months (older viewers will recall that the previous limit of 24 months was extended during the height of the last recession, but only as a temporary measure to alleviate what was then a very real problem for many in a stagnant market).

Other, more skilled, commentators spend their time writing and lobbying for tax justice, and do so admirably and for no personal financial gain. Whilst commenting on international tax abuses and private equity outrages may be sexy, perhaps a few quick wins in duller areas could also be sought, with a review of s. 223(1) being one of them. At the very least, a return to 24 months should be achievable and requires only a Treasury order.

Without a review of tax laws of this nature, and the unintended effect they have on people's behaviour, we will be giving the generation of 2026 not even a fighting chance. We need the poor souls to have at least some hope of affordable housing if only so they have something left over to spend on the rest of us in our old age.