Thought around the proposed CGT
Interested to hear everyone's thoughts around this.
The debate around Capital Gains Tax (CGT) is often framed around fairness. The underlying premise is that individuals who benefit from capital growth should contribute tax on those gains, creating a more equitable tax system. However, the effectiveness of a CGT should not be judged solely on its intentions, but on its practical outcomes and the assumptions that underpin it.
A key assumption in many CGT discussions is that property values will continue to rise in the future as they have in the past. Yet a CGT introduced from 2027 would not tax the significant wealth created during previous property cycles—it would only apply to gains generated from that point forward. Policymakers are therefore making an implicit assumption that future capital growth will be sufficiently strong to generate meaningful tax revenue.
That assumption is far from certain. The conditions that drove exceptional property growth over previous decades have changed. Interest rates remain materially higher than the ultra-low-rate environment that fuelled much of the previous cycle. Housing supply has increased in many areas, affordability remains stretched, and lending constraints are more restrictive than in the past. Future property growth may be significantly lower than historical averages, meaning the actual pool of taxable gains could be much smaller than anticipated.
The debate also often assumes that wealth creation in property primarily comes from passive capital appreciation. Increasingly, however, many of the most successful participants in the property market generate returns through active value creation. Developers, traders, renovators, and sophisticated investors create value through subdivision, intensification, development, repositioning assets, and solving complex property problems. Much of this activity is already taxable under existing rules, with profits generally treated as income.
As a result, there is a risk that a CGT may have a greater impact on long-term investors than on professional operators. Larger and more sophisticated participants typically have access to specialist advice, diversified portfolios, greater scale, and more opportunities to create value independent of market appreciation. By contrast, smaller investors often rely more heavily on long-term capital growth as part of their overall investment return.
Property markets are also cyclical. Values do not move in one direction indefinitely. Markets rise, stagnate, and fall. Any fair CGT regime must therefore consider not only how gains are taxed, but also how losses are recognised and treated. Without symmetrical treatment of gains and losses, investors may bear the full downside risk while surrendering a portion of the upside, creating outcomes that differ from the policy's intended objective.
The concern is not whether capital gains should be taxed. Rather, it is whether a CGT introduced under current market conditions will achieve the outcomes that its supporters expect. If future capital growth is lower than anticipated, taxable gains may be limited. If compliance costs, valuation disputes, and administrative complexity prove substantial, the economic benefits may be less significant than projected. And if sophisticated operators are better positioned to adapt than ordinary investors, the policy may unintentionally reinforce existing advantages rather than level the playing field.
The real question is not whether a CGT appears fair in theory. It is whether, in practice, it generates meaningful revenue, improves economic fairness, and broadens participation in wealth creation, or whether it ultimately produces outcomes that differ from its original intent.