An influential think tank says Capital Gains Tax on buy to let properties and second homes should be levied at the higher rate of the income tax of the owner.

Meanwhile the annual exempt allowance of £12,000 on CGT should be slashed to £1,000.

These are the views of the Institute for Public Policy Research, an influential think tank.

CGT has traditionally been lower on investment properties and other activities because they involve risk-taking, while heavier taxed income from employment and savings interest reflect their much lower risk.

However, CGT is already 10 per cent higher for the sale of buy to lets and second homes – at 18 per cent and 28 per cent for basic and higher rate taxpayers – than for investments.

But a new report from the IPR insists: “Many of the capital gains made today are, in fact, ‘rents’. Primary residences are exempt from capital gains tax and we do not propose this exemption is removed, but property speculators and owners of multiple homes have benefitted from rising property prices and lower taxes on capital gains than employment income.”

It continues: “House prices have increased dramatically over the past four decades as a result of both commodification and financialisation, and much activity within the financial sector is speculative. As a result, many of the gains generated from these activities are not the result of genuine risk-taking to induce participation, but rather non-productive gains that increase inequality without expanding the productive potential of the economy, or ‘economic rents’.”

The IPPR also wants the scrapping of ‘exemption at death’ which it claims encourages people to hold assets for life to allow those who inherit the assets to avoid CGT.

“The UK is one of the most unequal countries in the developed world, and income inequality could be set to worsen as capital and property ownership become more important sources of income generation” the institute claims.

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