This article is the fourth in our series on Labour's proposed Capital Gains Tax (CGT), announced in October 2025. In our previous article, we looked at how property values would be established on Valuation Day (1 July 2027) and the methodology options available to taxpayers. Here, also drawing on our conversation with Phil Whittington, Partner at Heuser|Whittington and former Chief Economist at Inland Revenue, we look at why Valuation Day was chosen over the obvious alternative, and what compliance may look like once the CGT is running.
Valuation Day versus grandparenting
Grandparenting is the alternative to Valuation Day: leave existing assets alone entirely and only tax properties acquired after the CGT commences. It is administratively simpler. But as Whittington explains, it produces the worst form of lock-in. If your current property is permanently untaxed and any replacement would be taxed, you have a strong reason never to sell, because selling means swapping a tax-free asset for a taxed one, and people end up sitting on properties long after they would otherwise have moved.
A Valuation Day avoids that. Bringing every asset in at a common starting value puts existing and future properties on the same footing, so switching no longer carries a tax penalty. It does not remove lock-in altogether, since any realisation-based tax gives people a reason to defer selling, but it removes what Whittington describes as the sharp, transition-driven version that grandparenting produces. That is the real case for a Valuation Day.
Compliance mechanisms
Beyond methodology, there are practical questions about how compliance will actually work. The TWG report recommends that asset values on Valuation Day be filed with Inland Revenue within five years, with changes to the cost base reported in the year they arise. Rollover concessions must be disclosed, all parties to land transactions must provide their IRD numbers, and capital gains would be returned through a person's ordinary income tax return.
A further layer of complexity arises from properties that move in and out of the CGT net over time, for example a family home that later becomes a rental, or a rental that is later occupied as a principal residence. Gains in these scenarios need to be carefully apportioned between taxable and non-taxable periods. Clear guidance on record-keeping from the outset will go a long way towards determining whether the CGT is straightforward to administer or not.
A related point Whittington raises is that a Valuation Day baseline affects how losses are measured, and some of them may be less real than they appear. If the line is drawn near the top of the property cycle, a later sale below that value will register as a loss even when the owner is still ahead of what they originally paid. Under an ordinary cost base, the price the property cost when acquired, a loss means the owner genuinely sold for less than they bought. On a Valuation Day base it can be an artefact of where the line was set. Because losses shelter genuine gains, the loss rules and the way valuations are set need to be considered together rather than separately.
Please get in touch with our team if you would like to discuss how Labour's proposed CGT may affect your assets or investments.
