Rachel Reeves warned new tax 'could ruin plans for pensioners'

Pensioners risk being left unable to downsize if Rachel Reeves presses ahead with a new levy on the sale of high-value homes, lenders and estate agents have warned.

The Chancellor is reportedly weighing up whether to use the autumn Budget to scrap the long-standing exemption from capital gains tax on a person’s main residence – a move already being dubbed a “mansion tax”.

Under the shake-up, higher-rate taxpayers would pay 24% on the profit from selling their property, while basic rate taxpayers would face 18%. At present, homeowners pay no capital gains tax when selling the house they live in, no matter how much it has risen in value.

Treasury officials believe the change could raise billions. If a house price threshold of £1.5m were introduced, around 120,000 homeowners would be caught.

Across England and Wales, sellers of £1.5m-plus homes have typically enjoyed gains of £836,219. After the £3,000 exemption everyone receives, that would mean a taxable profit of £833,219 and an average tax bill of almost £200,000.

Critics say the measure would be devastating for older generations who bought their homes decades ago but now want to move to something smaller.

Paul Broadhead, head of mortgage and housing policy at the Building Societies Association, said: “We know from recent experience that changes to stamp duty have a direct impact on the property market, it’s likely that any reform to property taxation or so called ‘mansion tax’ could do the same. Speculation about what might happen can also have a distorting effect, so clarity is important.

“Ultimately, if owners of larger homes, who might otherwise downsize, are discouraged from moving it will make it harder for others to move up the property ladder. The BSA-commissioned independent first-time buyer report called for a reform of property taxation to increase market liquidity and encourage the more efficient use of existing homes.”

Nick Leeming, chairman of estate agent Jackson-Stops, told the Times: “Many homeowners, particularly older generations, are asset-rich but cash-poor.

"Decades of distorted house price inflation have left them with substantial equity on paper but limited disposable income. Adding further tax barriers upon moving could trap these owners in homes that no longer suit their needs, leading to a less mobile and more stagnant market.

“There is broad consensus across the property industry that reform is needed. Existing frameworks for council tax, stamp duty, and capital gains tax no longer reflect the realities of today’s housing market. However, reform should aim for a balanced approach to reduce friction and support movement within the market.”

Nick Flynn, sales and distribution director at Canada Life UK, echoed the fears, saying: “Introducing capital gains tax on first homes over a certain threshold will penalise older homeowners who have lived in their property for many years and are seeking to downsize.

“Many pensioners have very modest incomes, despite living in properties that have appreciated in value over the years. These people may need to rely on their properties to help fund retirement costs, particularly given the prevalence of under-saving into pensions.

“Taxing main residences will limit people’s options, discouraging mobility in the housing market and freezing people in homes that are larger than they need.”

Treasury officials are also looking at an entirely new form of property tax on expensive homes but insist no decisions have been taken. Reeves has ruled out increases to income tax, VAT or National Insurance, but is determined to put “fairness” at the centre of her Budget.