The Treasury has denied that homeowners could be forced to pay up to 40 per cent tax on the profits they make on the sale of their home.

Sunday newspaper reports suggested the chancellor was considering plans to impose capital gains tax on the sale of all houses.

Despite on-the-record confirmation from a senior City source, the Treasury said the claims were "unadulterated garbage".

As the public finances face a growing shortfall, Gordon Brown was said to be examining plans to levy the 40 per cent tax on property windfalls.

Under current rules capital gains tax is only levied on the gains made on second properties. But moves to scrap the exemption on main residences would provoke an angry backlash amongst homeowners.

Such a move could also put the chancellor on a collision course with the prime minister - who is hesitant about any further tax raid on middle income earners.

According to the Sunday Telegraph newspaper the Treasury has been involved in secret negotiations with private sector tax consultants over the move.

The change would deliver an additional £11 billion a year - the equivalent of a four per cent increase in the basic rate of income tax - to a chancellor facing a growing gap between his tax receipts and spending plans.

City sources have confirmed that the Treasury is giving active consideration to the move.

Patrick Cannon, the head of stamp duty at Pricewaterhouse Coopers, said the discussions were still at an early stage - but confirmed that the policy was being examined.

"The Treasury has told us it is actively planning taxing the sale of first homes," he told the Sunday Telegraph.

"We know he is eyeing up the housing market and we know he is looking especially closely at taxing people who make speculative short-term investments in the housing market. It is at an early stage."

Some say the Treasury will water down the proposals - examining ways, for example, to levy the tax on houses worth upwards of £500,000.

Other sources privately suggest the chancellor will dismiss the move - but may use it as a means to soften up voters for a further increase in stamp duty on top-end properties.

A spokesman for the Halifax described the proposed 40 per cent levy as "a hugely regressive step".