Financial Transaction Tax - Does it make property more attractive to investors?

RenovationMan

"Pension funds could soon have to bear the cost of a Europe-wide tax on equity, bonds, 
currency and derivative transactions, finds Lynn Strongin Dodds"

http://www.risk.net/life-and-pension-risk/news/2127518/eu-financial-transaction-tax-proposals-hit-pensions-hard-experts

With pensions possibly having to bear the brunt of yet another tax raid, coupled with the bad press about large bonuses being paid to poorly performing fund managers, does anyone else think that property is increasingly looking like the best investment method to secure a reasonably comfortable retirement?

I have always been a proponent of fund/share/bond based pension schemes for retirement purposes but the sustained battering that pension funds receive and the extremely robust way that property has held its value during what has been the worst financial crisis since the Great Depression has made me start to reconsider my retirement strategy.

I had already added property to my retirement strategy by buying a large house that I can downsize from and release tax free equity. I'm now wondering whether a couple of BTLs should be added to my retirement portfolio, instead of adding further to my existing pension pot.

I know there are a fair few BTL landlords on here, but I was wondering if other people who have avoided this route in the past (I always thought it was too much hassle compared with investing in funds) are now also reconsidering their position, especially as residential property prices have bottomed out, representing a good 'buy' opportunity.

DervProf

You seem to be asking a lot of questions about what you should do.

I suggest that you might get better answers on the Savings and Investments, or Pensions, Annuities and Retirement Planning boards.

chewmylegoff

Given that the govt has made it pretty clear that the tax won't be levied in this jurisdiction, all you need is an investment strategy which doesn't involve financial instruments from Europe, and it will have no impact.

For most people, investing in property is pretty risky because they can only afford one investment property. I don't see how a small transaction tax would make it worth taking much greater concentration risk.

Furthermore in order to run it, most people end up paying an agent to find a tenant and manage the property so you lose 15% of your income in charges, which makes a fund manager look like good value.

I know everyone here with their BTLs will be along to say they do all the management themselves, and nollag will make up some story about how he puts his tenants rent up by 35% a month. I wouldn't want to invest in property personally as I don't have enough capital to spread the risk between 5 or so properties, although of one of these funds that is going to invest in residential property to rent ever gets off the ground I would give that a look.

RenovationMan

DervProf wrote: »

You seem to be asking a lot of questions about what you should do.

I suggest that you might get better answers on the Savings and Investments, or Pensions, Annuities and Retirement Planning boards.

I'm asking a single question, "what are other people doing".

The last time I looked this was the Discuss Economy and House Price board. I'mtalking about investing in houses. If you're not interested in discussing property investment then I suggest you move along to the many other discussion threads available?

chewmylegoff

P.s. if there is a financial transaction tax, there is a fairly good chance that it will be levied on BTL mortgages. If it is a % tax that is going to be a significant cost.

DervProf

RenovationMan wrote: »

I'm asking a single question, "what are other people doing".

The last time I looked this was the Discuss Economy and House Price board. I'mtalking about investing in houses. If you're not interested in discussing property investment then I suggest you move along to the many other discussion threads available?

"Debate House Prices & the Economy".

Sounds to me like the general idea is to discuss/debate house prices and the economy in general, rather than asking (and telling other people) about personal financial situations.

RenovationMan

chewmylegoff wrote: »

P.s. if there is a financial transaction tax, there is a fairly good chance that it will be levied on BTL mortgages. If it is a % tax that is going to be a significant cost.

That's an interesting point, I wonder just how broad the term 'financial transaction' will become if this tax takes hold. Usually these sorts of tax schemes grow exponentially, so perhaps it'll become a type of VAT on all financial transactions?

I can't see how they could levy it on BTL mortgages though as a mortgage represents debt repayment and not an investment as such - the investment was the initial purchase of the property and that's already covered with stamp duty.

chewmylegoff

They could just tax the advance of the mortgage from the bank to you. It is a transaction tax that is proposed, not an 'investment' tax, so I don't see that being a problem. They may tax the bank not the borrower, but who do you think that cost will be passed on to?

Doubt the govt / EU would have a problem shafting those who are already paying stamp duty on a house purchase - quite happy to apply VAT to fuel duty e.g.

wotsthat

RenovationMan wrote: »

I have always been a proponent of fund/share/bond based pension schemes for retirement purposes but the sustained battering that pension funds receive and the extremely robust way that property has held its value during what has been the worst financial crisis since the Great Depression has made me start to reconsider my retirement strategy.

You're already paying a financial transaction tax via stamp duty on share purchases.

I've tried to avoid this by transacting less (which avoids commission fees too) and holding shares directly so I don't have to pay management fees to fund managers.

A new tax or increased tax would push me further in the same direction. As a strategy it seems to be working out but I'm not sure that a tax which discourages financial transactions is good for economies.

DervProf

I would not be suprised at all to see a tax put on most property transactions within the next decade or two. I think the only reason that property has been "left alone" is due to the public response that would greet an increase in tax on property transactions. It's going to be a hard task to "balance the books" and the way to do it is not only to cut public spending, but to increase tax receipts.

Now, what could a government tax to bring in extra revenue ? What part of the economy seems to have done well in recent times ?

shortchanged_2

I don't think property is really a very good investment now as it is already overpriced, therefore I don't really see any massive gains over the next few decades, probably no better than sticking the money in a savings account.

What you need to consider is that house prices rose 200 - 300% over the previous decade, that is probably 10 times what they naturally should have if the banks had kept a tighter lid on lending.

As long as the banks keep a tight reign on lending now there is virtually no chance of house prices rocketing like that in the next few years.

So yes, while you may have done well out of the property market during the boom years RenoMan, I don't really see property as a fantastic long term investment from this point because I can't really see any major gain in property prices for a long time as they have never properly adjusted from the last boom.