TAX NEWS - JUNE 2010

Scotland Tax: Fears over capital gains tax hike

Tens of thousands of old and vulnerable people could be hit by the Government's plans to increase capital gains tax, a care homes group has warned.

Around 150,000 elderly people currently live in care homes, but have not yet sold their former family home.

If they still own the property three years after they first moved into a care home, the care home is considered to be their primary residence and their former home is designated as a secondary property, meaning it could be liable for capital gains tax when it is sold.

Balhousie Care Group, one of the largest residential care home providers in Scotland, has warned that the new Government's plans to raise capital gains tax (CGT) on non-business assets from its current level of 18% to rates similar to those applied to income, could hit people in this situation.

The move could mean that anyone who was a higher-rate taxpayer and sold their family home after three years of being in a care home would have to pay capital gains tax of 40% on any increase in the property's value between when they first bought it and when they went into care.

Tony Banks, chairman of Balhousie Group, said: "It would be grotesquely unfair of the Government to impose their proposed changes in capital gains tax upon the 150,000 old folk who already live in care homes.

"This will penalise the old and vulnerable. People do not know how long they will be going into care homes for and they are obviously reluctant to sell their homes first-off. Many of the 150,000 homeowners who currently live in care homes will need the money from their homes to fund further care."

He also called on the Government to provide adequate care for the country's ageing population.

Paul Green, of Saga, said: "This is grossly unfair. The rise in capital gains tax (CGT) has been put forward by the Lib Dems as a way of stopping fat cats taking their income as capital. But these are not fat cats. These are old people who desperately need this money."

The Government is facing growing opposition to its plans to increase capital gains tax from right-wing Conservative MPs, who have warned it could hit entrepreneurs and savers. Letting industry bodies have also warned it could lead to a shortage in the number private sector rental properties available, if landlords sell up in a bid to avoid the tax.