As originally published in "Green Street News"
Article by Tim Seddon, CEO of Retirement Villages Group
The chancellor's plans to meddle with capital gains tax relief risks locking older people in family homes.
The past week has seen intense speculation that chancellor Rachel Reeves intends to scrap capital gains tax (CGT) relief on primary homes in her upcoming autumn statement.
We don’t yet know whether Reeves will stand by this plan, but the rumours are already causing tremors across the UK housing market. If it does happen, the knock-on effects could be serious – not only for the housing market, but for the health of our growing population of older people.
At the moment, people have the peace of mind of knowing that if they choose to move out of their family home, they won’t be hit with a sudden tax bill. Take that away, and it’s very likely most will decide to stay put.
Exacerbating the problem
We already have a problem with under-occupied housing. Across the UK there are around 10 million bedrooms sitting empty, and most of those are owned by over-65s. Nearly nine in 10 people aged 65-79 live in under-occupied housing, and more than half of them live in homes with two or more excess bedrooms.
A lot of those homeowners plan to move in later life to free up some equity, pay for their care, be closer to their children, or simply to live somewhere that’s easier to manage as they get older.
Nearly nine in 10 people aged 65-79 live in under-occupied housing
But if moving suddenly comes with a financial penalty, many will do nothing. That means fewer family-sized homes coming back onto the market and younger people finding it even harder to climb onto, or up, the housing ladder.
It’s not just an issue of supply and demand. There’s a human cost, too. Anyone who’s had an ageing parent or grandparent knows that the right kind of home can make a world of difference to someone in later life.
Smaller, safer, more energy-efficient homes in supportive, well-connected communities help people to stay healthier and happier for longer. They are good for both mental and physical wellbeing, and reduce the risk of loneliness as well as the crises that so often lead to hospital admissions or long-term care.
On the flip side, being stuck in a house that’s too big, too cold, or too far from friends and family can take its toll. It can mean isolation, high bills, and a real decline in wellbeing. That’s why it feels wrong to be talking about policies that would keep people in unsuitable homes.
Removing barriers
If anything, we should be doing the opposite. The tax system should make it easier, not harder, for people to downsize into homes that work for them. We should be helping older people get the quality of life they deserve, and younger families get access to the homes they need.
Selling those large family homes also increases opportunities for grandparents to support younger members of their families at the beginning of their own journeys onto the housing ladder. Fiscal incentives are urgently needed to help our national housing crisis. We don’t need more barriers.
The tax system should make it easier, not harder, for people to downsize
The government has a chance to back a housing policy that benefits every generation. Taxing downsizers through imposing CGT on primary homes is regressive. We should be looking at smart incentives that unlock those 10 million empty bedrooms and help fix both our housing market and the challenges of an ageing society.
As the Older People’s Housing Taskforce recommended to the government last year, cutting stamp duty for older people moving into age-appropriate housing could be a major incentive to downsize. “Last-time buyers” could simply be treated like first-time buyers, meaning senior citizens downsizing to smaller properties would not pay Stamp Duty below a certain threshold. This is in addition to the supply-side reforms we desperately need to cut through the barriers to building more attractive, age-appropriate later living housing at scale.
In the current economic environment, we all understand that the chancellor is faced with difficult choices. But Labour ruled out implementing such a potentially damaging policy before the last election for good reason. The likelihood is that most homeowners will simply stay put longer than they otherwise would, and the chancellor will find she hasn’t raised anything like the money she needs.
The government should think seriously about the implications for downsizer and the wider housing market – before it turns its back on its previous guarantee.