Dr. Barra Roantree:

I will build a bit on what our chairwoman has said. This is one of those recommendations that needs to be read in conjunction with others. In this case that relates to the recommendation about elimination of forgiveness of capital gains tax, CGT, on death. These two need to be done together because if we were to remove or restrict the CGT relief on principal private residences, it would then create a desire for people to hold onto property until they pass away. That is really where that bit comes in. We need to think carefully about how this would be done.

Part of the way that it can be done is to do it in a way that minimises distortions through people holding onto their homes longer than they might. If the forgiveness of CGT on death is not addressed, people would end up holding on to their properties for longer than they might and not downsizing, thereby creating issues in the housing market. This is a particularly complicated one but it is doable. We might not want to get into all the finer details, but the Mirrlees review done by the Institute for Fiscal Studies goes through various ways that this could be done in a way that avoids creating those kinds of issues in the housing dynamic.

We are clear that it is not an uncomplicated policy change and needs to be carefully thought out, with regarding to other bits of the system, particularly capital gains tax relief at death, but there is a way to do it to avoid gunking up the housing market by either making people want to hold on to houses or flip houses they might otherwise not.