Debate House Prices


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Should CGT for "principal private residences" be introduced?

The back page of the Sunday Times money section usually has an illuminating interview with some celeb about their finances. This week was slightly different as the space was given to the joint-winner of the 2010 Nobel prize* for economics, Christopher pi.ssarides (link, paywalled). Here is his comment on British taxation:
What aspect of our tax system would you change?
The current system says that if I made an enormous gain on my main house I would pay no tax, but if I died and passed it on to my children, they would have to pay inheritance tax. That doesn’t make sense to me. It should be the other way round. We should pay capital gains tax on the main home and abolish inheritance tax.
The whole "our home is our pension innit" noughties was fueled by houses remaining untouched by politicians while they grabbed money from pension wrappers. The expenses scandal was leveraged thanks to parliamentarians paying off their mortgages with our cash. By keeping principal residences CGT-free politicians incentivise folk to hold onto homes as an investment when we should be incentivising liquidity in the property market to aid social and geographic mobility.

Obviously CGT on principal residences shouldn't be introduced retrospectively. Say, any gain from purchases (and elections for change of principal residence) made after April 5th 2011 should be taxed when sold. Would you be in favour of such a proposal and what would it do to the value of British homes going forward?


*technically it isn't a Nobel prize (noted just in case some smart guy/gal was going to comment - not because I'm a pedant!)

PS. pi.ssarides' name, of course, doesn't have a "." in it. Martin's auto-censorship is taking the piddle!


PPS. Technically he's wrong about the children having to pay IHT since it is his estate that is taxed. You can blame Thatcher/Tories for this commonly held belief since they introduced the Owellian named "Inheritance Tax" in 1984.
"The state is the great fiction by which everybody seeks to live at the expense of everybody else." -- Frederic Bastiat, 1848.
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Comments

  • RJP33
    RJP33 Posts: 339 Forumite
    I'd love to see us look at reducing both the number of and amount of tax we pay rather than introducing new ones, which give the government more money to waste.
  • CLAPTON
    CLAPTON Posts: 41,865 Forumite
    10,000 Posts Combo Breaker
    an annual land value tax would make a lot of sense; it would reduce the large amount of 'horded ' land (many local authorities, HAs and governement agencies but also private companies and people) so raising taxation of artifical gains and releasing land of building
  • Mr_Mumble
    Mr_Mumble Posts: 1,758 Forumite
    RJP33 wrote: »
    I'd love to see us look at reducing both the number of and amount of tax we pay rather than introducing new ones, which give the government more money to waste.
    Oh, I'm in complete agreement on that. But, would you prefer CGT on principal residences to some of the taxes you currently pay. E.g. abolishing Inheritance Tax (as the econ prof would like), a cut in VAT or Income Tax, fuel duty, insurance premium tax, stamp duty, etc.
    "The state is the great fiction by which everybody seeks to live at the expense of everybody else." -- Frederic Bastiat, 1848.
  • RJP33
    RJP33 Posts: 339 Forumite
    In terms of the proposal itself I think (and personally this is an idealogical thing) that we should refrain from having CGT on principal residences as this is what most people work their whole lives for, is usually part of a chain (so not a windfall) and is generally not intended for profit.

    I do wonder what effect it'd have on house prices - probably supress some prices to avoid the tax.
  • Totally unworkable.

    How do you do it? Valuation every 5 years and send everyone a Tax Bill for their increase? Impossible. Wait until sold, and tax 'actual' profit? So I live next door and pay nothing. You changed you job and were forced to move 200 miles away. You pay I don't. Impossible.

    If you want to tax people's houses, then wait until they die.
  • michaels
    michaels Posts: 28,767 Forumite
    Part of the Furniture 10,000 Posts Photogenic Name Dropper
    I have long been advocating this, index linked of course.

    THe economic rationale is that building land is in short supply so with increasing numbers of households those lucky enough to be holding 'property' are making a windfall gain, some of which should accrue to society rather than the individual. Fairer and with the side effect that it is likely to reduce boom and bust in the market. For those who say it is unaffordable, look at the stamp duty over 500k which is what a family home will set you back in most parts of the SE.
    I think....
  • Jowo_2
    Jowo_2 Posts: 8,308 Forumite
    Presumably, the introduction of CGT on personal properties while alive will cut down drastically on the amount of times someone moves property so would the lack of properties coming on the market cause high property prices? Would perhaps limit geographical mobility when it comes to people moving for jobs, relationships, etc, though perhaps it would stop some communities from being so transient?

    Sellers only had to pay £200 - £400 for a home buyers survey and once this minor cost was removed, lots more properties were marketed.
  • maninthestreet
    maninthestreet Posts: 16,127 Forumite
    Part of the Furniture
    Such a tax would provoke a collapse in house prices and the housing market unprecedented in living history, and precipate a recession not seen since the 1930s.
    "You were only supposed to blow the bl**dy doors off!!"
  • FTBFun
    FTBFun Posts: 4,273 Forumite
    Such a move would be fairly decent for someone who is expecting substantial inherited wealth rather than through their own endeavours. Like the Chancellor, for example.
  • Generali
    Generali Posts: 36,411 Forumite
    10,000 Posts Combo Breaker
    CGT for private residences is a very poor idea IMO as it encourages older people to 'over-consume' housing, that is for an older couple or single to continue living in the family home rather than selling up and moving somewhere smaller. By selling up they'd realise a big tax liability which reduces the desire to sell.

    A tax on wealth, ie net asset value, of a person seems like a good idea to me as it would encourage productive investment. Eg rather than living in a very large house, someone might chose to buy 2 places for the same value, live in one and rent the other out.
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