Time to tax homes ?

The Halifax reports that the combined sales price of the UK's 22 million homes is now in excess of £4,000 billion (being nearly three times the UK's GDP). The accompanying mortgage debt is only a trifling £1,200 billion, thereby giving us what the Halifax refers to as a mountain of net housing wealth of more than £2,800 billion. When saying mountain and wealth, we should remember that the Halifax is a bank and an estate agent, who will also say the whopping 27% APR on its Classic Credit Card is good value and that a room the size of a cupboard is, in fact, a bedroom !

With prices having risen by 208% in the past 10 years (during which time, the RPI has risen by a comparatively meagre 31%), and the government being a tad strapped for cash, might it be time for the CGT exemption on principal private residences to be abolished. After all, the government is already proposing the abolition of other, arguably more justifiable, CGT reliefs in the name of raising tax revenues (or should that be simplification).

Guessing at some figures, let us assume that 20 million of the UK homes are owned by tax residents, the average ownership period is 5 years and that, during which time the price of the average home has risen by 100% from £90,000 to £180,000. If one in every six of those homes is sold during 2008-2009, a profit of £300 billion will be realised which, at the new proposed CGT rate of 18%, gives £54 billion in extra tax revenue and, therefore, just enough to cover the OECD estimate of the budget deficit for the forthcoming tax year.

We have absolutely no idea over the accuracy of these guesses but they should comfortably fit the space remaining on the back of the envelope used by the Chancellor for his pre-budget report.