Tax threat to home owners

Property owners could be taxed for selling as well as buying their homes under a radical plan being considered by the Government.

And the rate of tax would rise for every year the seller had lived in the property, in a twist aimed at encouraging people to move more often.

"Seller's tax" could partially replace stamp duty, which is paid by homebuyers at up to four per cent of the value of a property.

The aim would be to encourage flexibility in the housing market and free up more homes in London and the South-East for key workers such as nurses and teachers.

But the move is certain to anger families and pensioners who had stayed in one home for a long time. It would be branded by the Tories as another stealth tax.

The Prime Minister's strategy unit is understood to be examining the seller's tax proposal after it was discussed at a Cabinet Office seminar last month.

However, the reality is that it will prove far too controversial to be implemented, and Downing Street appeared set to be distancing itself from the idea.

Backers of the proposal claim that stamp duty acts as a brake on the property market by giving growing families an incentive to stay put and build an extension, rather than moving.

Labour has already increased taxes on property by lifting the rate of stamp duty and scrapping mortgage tax relief.

To counter charges that homeowners were being penalised still further, ministers could cut stamp duty at the same time as introducing a seller's tax, and claim that the whole package was cost-neutral. The winners would be individuals and families who move frequently.

The idea comes from Barry McCormick, the newly-appointed chief economist at the Department of Health. He told the Daily Telegraph: "It would have the beneficial effect of raising the same amount as stamp duty while reducing the inefficiency.

"At the moment you pay stamp duty when you purchase a house and that creates rigidity and inhibits its efficiency because people try to avoid moving around to avoid the stamp duty.

"People would think, 'If I move now I shall pay less stamp duty than I would in five years' time."

Chancellor Gordon Brown has made it his mission to encourage the growth of an Americanstyle flexible labour market, where workers are prepared to move from region to region in search of a good job.

But the gulf in property prices between North and South makes moving more difficult, and has made it hard for schools and hospitals in London and the South-East to recruit essential staff.

In next week's three-year spending review, the Chancellor is expected to promise £1billion towards the cost of building homes for key workers. The money will be handed to housing associations to subsidise the building of low-cost rented flats and houses, with London receiving the largest share.

At the same time, the Government is examining ways of sweeping away some planning restrictions, to make it easier for developers to obtain permission to build new homes in economic hot-spots such as the South-East.