The CIOT is concerned that the evidence used by HM Treasury arose before the COVID-19 pandemic brought the property market to a near standstill.
The Chartered Institute of Taxation (CIOT) has called for the government to delay changes to capital gains tax rules in relation to home sales, to take account of the impact of COVID-19 on the property market.
The measure is included in the current Finance Bill, which begins its committee stage in the House of Commons on 4 June.
Private Residence Relief (PRR) enables most owner-occupiers to sell their properties without being liable for capital gains tax on any rise in their property’s value since they bought it.
Under the law currently in place, people do not pay capital gains tax on gains made in the final 18 months of ownership, even if it was not their main residence during that period.
The Finance Bill aims to reduce that period, backdated to 6 April 2020, to the final nine months of ownership for most people; the existing 36-month period for disabled persons or those in a care home will be retained.
The CIOT is concerned that the evidence used by HM Treasury for this reduction in the final period exemption arose before the COVID-19 pandemic brought the property market to a near standstill.
The evidence then suggested an average selling time of approximately four and a half months, which may no longer be realistic.
Marc Selby, chair of the CIOT’s Property Taxes Committee, said: “We applaud the government’s desire to better target a tax exemption – we think all reliefs should be regularly and consultatively reviewed – but is now really the right time to be making this change to this relief?
“We are concerned that the original assumption of an average time of four and a half months for selling a property is out of touch with the reality of the property market today because of the impact of COVID-19.
"We strongly suggest that the original evidence base needs review and that consideration should be given to delaying the squeeze in the final period exemption until the impact of COVID-19 on the property market is better understood.”
Research by property website Zoopla found that 41% of would-be home-movers across Britain had stepped back from their property plans in light of market uncertainty, loss of income and lower confidence in their future finances.
The CIOT has suggested that there is a significant possibility that the market will remain slow for some time, with houses taking much longer to sell than expected at the time of the consultation, leaving some sellers with an unexpected tax liability.
Selby added: “Many homeowners who are trying to sell a former home may not be aware of the reduction to nine months.
"If this change goes ahead now, the new rules must be better communicated.
"Their introduction coincides with the new 30-day time limit running from the date of completion to report and pay capital gains tax.
"The reduction in the final period of ownership exemption from 18 months to nine months combined with a 30-day time limit for reporting and paying tax on residential property gains means that the realisation of a chargeable gain is much more likely, particularly as the property market revives, and there is now much less time to establish capital gains tax liability and pay the tax due.”
The CIOT has expressed disappointment that there was consultation only on the details of this property sales tax change after the decision in principle had already been announced.
The call for a more consultative and evidence-based approach to tax legislation was among the themes of the Better Budgets report by the CIOT, the Institute for Fiscal Studies and Institute for Government in 2017.
