Time to pay CGT on second homes?

penguine

An idea worth considering, I think.

www.guardian.co.uk/money/2009/may/23/second-homes-capital-gains-tax

It's hardly surprising that no MPs were caught out by the HMRC when they were dodging CGT, because it appears to take a lax approach to enforcing property taxes. If you are a PAYE worker, you buy property out of your taxed income and (since Miras was abolished years ago) cannot "offset" the cost of mortgage interest. Meanwhile, buy-to-let "investors" are allowed to offset mortgage interest costs against the rent and other expenses, then fiddle principal private residence relief to avoid CGT. No wonder younger first-time buyers were in such a lose-lose situation while the buy-to-let merchants were grabbing what they could.

Even those who are honest about paying the CGT on their second home face a rate of just 18%. And while they hold the property, they benefit from council tax subsidies which mean they may pay just half the rate levied on their live-in neighbours.

And should CGT be imposed on your primary residence too?

No, it needn't mean you'll have to pay thousands in tax just because, through no fault of your own, your house goes up in value over a short space of time. But it would remove pressure on house prices if speculative buyers did not push up prices and make huge short-term gains while contributing nothing to the economy. House price moves would be duller. And we would all be happier for that.

Genuine homebuyers could avoid the tax through re-introducing a form of "taper relief". In other words, if you stay in a home for, say, five years or more, on sale you would be exempt from CGT. But if you buy one month and sell the next, the tax could be pretty hefty. And there could be a waiver for homes under a certain price level. The tax raised could even go some way to cutting local council taxes. Speculators would pay more, house price movements would be less extreme, and genuine homeowners would pay lower council taxes.

lostinrates

I think its an interesting thing, with much validity: but I think it would require a chnge in attitude to renting,particularly concerning younger people who move for career reasons. Fo this reason, I come back to a point I almost lways return: our approch to renting is not right: there needs to be some change allowing the flexibilty of our AST of six months, and a longer more secure type tenancy.

penguine

lostinrates wrote: »

I think its an interesting thing, with much validity: but I think it would require a chnge in attitude to renting,particularly concerning younger people who move for career reasons. Fo this reason, I come back to a point I almost lways return: our approch to renting is not right: there needs to be some change allowing the flexibilty of our AST of six months, and a longer more secure type tenancy.

I agree, I was thinking about this yesterday. When I first came to the UK I was surprised at how many 20-somethings owned their own property. In the US I didn't know anyone who owned a home before they had married and started a family. My first impression was that Brits seemed more financially responsible

Now I wonder why so many people want to saddle themselves with a mortgage so young. They're potentially locking themselves into staying in one place even if a better job opportunity comes up elsewhere. When prices are going up and property is selling like hotcakes, they come out ahead, but when prices fall then the last ones on the ladder are the first ones to end up financially imprisoned by their mortgage.

So better legislation for renters would probably help to keep 20 and 30-somethings from being the ones who pay the burden of a bursting property bubble every 10-15 years.

pickles110564

lostinrates wrote: »

I think its an interesting thing, with much validity: but I think it would require a chnge in attitude to renting,particularly concerning younger people who move for career reasons. Fo this reason, I come back to a point I almost lways return: our approch to renting is not right: there needs to be some change allowing the flexibilty of our AST of six months, and a longer more secure type tenancy.

I have always backed longer term tenancys but renters should have to put up larger deposits to back up that they can pay over these longer terms

penguine

pickles110564 wrote: »

I have always backed longer term tenancys but renters should have to put up larger deposits to back up that they can pay over these longer terms

Why isn't first and last month's rent sufficient? Why should tenants have to pay a larger deposit in order to live in a property for an longer period of time? The deposit should be to cover possible damage to the property while they're living there, not to pay for the security of living there for a longer period of time -- which benefits both the landlord and the tenant.

mewbie_2

pickles110564 wrote: »

I have always backed longer term tenancys but renters should have to put up larger deposits to back up that they can pay over these longer terms

The landlord should also be required to show they have sufficient funds to cover repairs, etc. How about both tenant and landlord place 1st months rent into an account to show that they are BOTH financially sound?

Degenerate

penguine wrote: »

An idea worth considering, I think.
www.guardian.co.uk/money/2009/may/23/second-homes-capital-gains-tax

The article is full of inaccuracies.

Instead, they told "investors" to set up the odd utility bill in their name at their investment property. This, it seems, was all it needed to convince HMRC it was your principal private residence and therefore not liable for CGT on the profit when sold.

There's a word for that: FRAUD. You have to actually be living there. And you cannot have two primary residences simultaneously, so if you do actually live there, then you become liable for CGT for that period on what was your main home - which is probably worth more. There is, however, a rule that exempts the last 3 years of ownership from CGT if it was ever your primary residence.

and:

Even those who are honest about paying the CGT on their second home face a rate of just 18%. And while they hold the property, they benefit from council tax subsidies which mean they may pay just half the rate levied on their live-in neighbours.

Since 2003 councils have been allowed to scrap the 50% empty property rate, and most have. In many cases you pay more for an empty property than you would if you were a single person living there.

silvercar

CGT on your main home is unfair on the elderly who, having lived in their family home for 40 years, can't afford to trade down to a more manageable home.

There is, however, a rule that exempts the last 3 years of ownership from CGT if it was ever your primary residence.

This is the problem. People buy a rental, live in it for a few months to get exemption from CGT for the last 3 years of ownership and can access letting relief, worth upto another 40k allowance.

whathavewedone

I don't agree with long term tenancies being compulsory. I worked for a number of landlords who had tenants with tenancies dating back to the 1970s and it was just impossible to get them out even when they had breached their tenancy agreements. The law was weighted so heavily in favour of the tenants that there were numerous ways that they could play the system to their advantage.

Sometimes for financial reasons people need to let their properties out for a short period of time. In the last recession my sister got made redundant and rented out her flat for a year while living with our mother.

If landlords want to let their properties out for longer periods of time then they should be entitled to larger deposits. Believe me, there are plenty of tenants who live like pigs and the damage that such people could do to a property over the course of 5 years would cost a lot more than one month's rent!

As it is one or two month's rent is often woefully inadequate compensation for the damage a lot of tenants do to people's properties in the space of 6 months.

My husband let his house out a few years ago. The tenants did a runner. When he let himself in he found they'd ruined carpets, all the furniture, the cooker - the fridge was in the garden for some reason crawling with maggots - the toilet seat was broken - the whole house had to be stripped of everything and redecorated completely. They'd only been living there for 6 months! Okay so they didn't get their deposit back but the cost of putting everything right was a lot higher.

michaels

I have suggested CGT instead of stamp duty on homes a few times on here.

I would suggest that it should be index linked so that the 'inflation' aspect of any gain is taxed and adjusted for any 'improvement' made to the property. There could be tiered rates and even an annual exemption (property ISA) if needed and of course any change would have to be introduced gradually to avoid distorting the market with retrospective taxation.

Land (and property) are limited in supply, the population is increasing. Why should those already with property be the sole beneficiaries of rising house prices, it would seem only fair that the gain was shared with the country as a whole (via taxation) just as every other capital gain is.

Moving already requires large capital sums to be found for stamp duty so it is not impossible for buyers or sellers to find extra funds if needed and possibly the market would be slightly less prone to booms and busts. I think mobility would be increased as well, currently to move for my job would mean paying stamp duty at 2.5% just to move to a similar house and to move again if the job changed a year later would cost the same again :eek: