How does this sound for tax policy? Tax on property ownership over X.

CLAPTON

If ownership of property is limited to only two properties before punitive taxes kick in then presumably that would apply to ALL landlords and would presumably lead to increased rental prices to pay the extra taxes.


On the matter of new builds.
Why would anyone commission a lot of new properties to rent if he knew he would have difficulty in selling them eventually as the new buyer would be subject to your punitive taxes.

Randvegeta

If ownership of property is limited to only two properties before punitive taxes kick in then presumably that would apply to ALL landlords and would presumably lead to increased rental prices to pay the extra taxes.

I am not so sure about that. You may be right, but I would imagine 'investors' would dump their property to find better returns. I highly doubt raising taxes would raise the value of property or returns on rent.

Also, perhaps instead of a tax on the rental income, a tax on the ownership would be more sensible? In this way, the property would raise government revenue regardless of whether or not it was rented out. People who own 1-2 properties would not have to worry about this particular tax. Also, given this is just an idea, it may very well be more practical to set the 'limit' to 3 or even 4 houses. I don't know.

On the matter of new builds. Why would anyone commission a lot of new properties to rent if he knew he would have difficulty in selling them eventually as the new buyer would be subject to your punitive taxes.

.

Well first of all, the point of such a tax would be to 1.) to raise tax revenue for the government and 2.) to prevent/reduce the levels of property bubbles and generally over inflated prices. See Spain as an example of what happens when property prices go out of control and developers are wooed into building new buildings without the proper underlying demand.

If there is demand for housing (meaning someone needs to live somewhere), then there will be incentive to develop property. And I would treat the building of new property different to buying and renting old property. I suppose if such a tax policy existed, you could try and incentivise new builds by offering tax breaks for landlords who buy/rent out new (say less than 10 years?) property.


Unless there is a positive economic argument as to why a person can buy up land and buildings for the sole purpose of sitting on it and collecting rent, I don't see the problem in a tax policy that discourages that behaviour, revenue is raised for the government, and property prices come down.

John_Pierpoint

real1314 wrote: »

What does Tesco develop or produce? Nothing. They are just a middle-man.

There are swathes of the UK economy based on service industry which does not develop or produce anything.

Both those statements are ridiculous.
Tesco (and others) have produced cheap food with a huge choice available 24 hours per day. Can we really blame Tesco for the foolish behaviour of customers who demand tastless strawberries flown round the world on Xmas day?

Does (say) a casino getting back a part of the fortune we have to pay for energy imports, from a rich Arab, perform no useful function?

The point is that far too much wealth is locked up in land (partly because only a fool trusts the politicians and bankers). If that land wealth is taxed the tax cannot be passed on and the value of land would fall. Thus encouraging it to be developed, Inside the M25 70% of the "value" of a house can be the "value" of the land on which it has been built.

What is the definition of a millionaire?
Someone who has lived in a mortgage free house within the M25!

Randvegeta

So are there any downsides to such a policy? If such a policy existed, does it seem fair?

If such a policy DID exist, would it not be a tax on the wealthy and very difficult to avoid/evade?

ian_duncan_smith

Property investment by the rich helps provide accommodtion for those who otherwise might never afford it. In an age when government capital spending on social housing has been cut, it fills a social void.

Would you rather the money was put under the mattress? That's where it would end up! If you own a profitable small business such as a corner shop but have no scope for further expansion where else can you invest your money in tangable assets that doesn't bear the risk of losing value overnight. Add to this the potential for further revenue through rent and property is a no brainer for the small business man with money to spare.

Even investment in commercial property is a force for good. Again not every enterprenure can afford to buy the property they run their business from. For some the certainty afforded by a long lease on fixed rent is better than than the vaguries of the money market and fluctuating interest rates. Knowing your outgoings over the long term can allow you to plan for medium and long term expansion of the business. Is this not a contribution to the economic wellbeing of the country?

Taxing such people out of the property market may bring down property prices but it will prohibit people dipping their toe in the water, and risking setting up a small business if they cannot find small term lets, which allow them to risk capital solely on business stock and equipment. Put simply, if I have a business idea that I want to try out, I don't want to end up lumbered with a 20 year mortgage on a, potentially non-producing property, until I am certain of the business' viability. Especially when the extra burden could result in me defaulting on my home mortgage and make me homeless.

Randvegeta

Nice screen name Ian Duncan Smith.

Property investment by the rich helps provide accommodtion for those who otherwise might never afford it. In an age when government capital spending on social housing has been cut, it fills a social void.

The property currently exists. If the rich still want to own the property and rent it out, that is fine, but a sizeable portion would end up being paid as TAX. The point is not to make it impossible to invest in property but to give back to the society that is vital for making that property worth something.

What is the the benefit to the economy as a whole for a small number of landlords to live off rental income from their working tenants? Or, imagine if you will, a foreigner who buys real estate and 'earns' rent while remitting all that money overseas. Where is the economic benefit?

Would you rather the money was put under the mattress? That's where it would end up! If you own a profitable small business such as a corner shop but have no scope for further expansion where else can you invest your money in tangable assets that doesn't bear the risk of losing value overnight. Add to this the potential for further revenue through rent and property is a no brainer for the small business man with money to spare.

Agreed, from a personal stand point, investing in property is a GOOD idea. Heck, I am investing in property now because I can buy a real asset that will likely go up in value (at least in line with inflation) and might even help me earn some income as well. But I fail to see how if I bought 10 properties and lived off rent, I would be a positive contribution to society. How would I? If you're happy with the status quo, great, I'll have my house paid off in just a few short years :-), and I will keep buying till kingdom come.

No I do not prefer people to stick their money under their mattresses. I would imagine if they are so worried about their money devaluing due to inflation, then they should go out and spend that on stuff they want, or invest it in shares or bonds etc. From society's perspective, is it not better to put money into businesses or buying goods?

Even investment in commercial property is a force for good....... Is this not a contribution to the economic wellbeing of the country?

Sure, it can be. but I was talking only about residential property since most people don't care about the cost of commercial/industrial property. They need a place to live. They don't pay for their place of work.

Taxing such people out of the property market may bring down property prices but it will prohibit people dipping their toe in the water, and risking setting up a small business if they cannot find small term lets, which allow them to risk capital solely on business stock and equipment.

Again this sounds like you are talking about business property. Not really something I was referring to. Though I think the principle is much the same, residential property affects far more individuals and it would seem to be one way of actually making housing affordable and getting the rich to pay more taxes without giving them a way to 'evade/avoid'.

Put simply, if I have a business idea that I want to try out, I don't want to end up lumbered with a 20 year mortgage on a, potentially non-producing property, until I am certain of the business' viability. Especially when the extra burden could result in me defaulting on my home mortgage and make me homeless.

Read above.

CLAPTON

1. All rich people who don't work, make no contribution to the economy.

There is in practice little or no difference in the economic consequences, if they invest their money in property and gain rent or they invest in shares and gain dividend or put it in saving accounts and gain interest.

In none of these situations are they doing any useful work that increase the wealth of the economy.


2. Leaving aside the issue of these useless people lets look at the consequence of running a rental business.

If letting out property is economically useless then that applies whether or not one has one property to let or thousands.

Many of us thing that letting out property is a proper business and provides a valuable service.
It provides homes for people to live in (many think this is a useful service).
It's a real business because it requires property maintenance, marketing, maybe improving etc and involves employing people too.

3. Tax

The rental business is taxed like any other business on it's profits.

I am a supporter of land value taxes on all land, so that society benefits from the land values created by society; these would apply to all land used for all purposes and ownerships.

4. New versa old

Unless there is a market for 'old' property it's very unlikely that any one will build new property unless they can make a quick profit to justify the capital expenditure.

Buying and selling already have tax applied, stamp duty, capital gains tax as well as othe costs (legal, marketing, surveys)


5. Business Property

I'm amazed you say people don't 'care' about business costs as if they don't matter.

Surely you realise that ALL business costs are passed onto consumers? (i.e. you)

John_Pierpoint

There is a method of getting a "double" return on the so called capital value of land, that is by turning your rented out farm into a mini insurance company.

It is called being a "name" at lloyds and as many "names" discovered, being in business carries real risks, when the asbestos "insurance" policies blew up in their faces, back in the 1980s.

A land owner, as anyone paying council tax knows, is a sitting duck for tax. It is almost impossible to avoid and it cannot be passed on.
The rental value of land is what the tenant can afford to pay, increasing the landlord's costs does not make the tenant able to pay any more.

John_Pierpoint

ian_duncan_smith wrote: »

Put simply, if I have a business idea that I want to try out, I don't want to end up lumbered with a 20 year mortgage on a, potentially non-producing property, until I am certain of the business' viability. Especially when the extra burden could result in me defaulting on my home mortgage and make me homeless.

Most commercial property owners will try to lumber their tenants with a 20 year full repairing lease, with an upwards only rent review clause and what a lot of tenants don't realise is that they may well be able to assign the lease (sub let it) but they remain responsible for the rent should the new tenant fail to pay.

The land owner tends to have the whip hand, the main reason for the current demise of the high street is crippling business rates, but this sort of long term contract has a lot to answer for too.
The tax system and the lease system is inflexible and both those parties are unwilling to respond to the self evident fact that fall in retail demand means the tenants CANNOT pay the former level of "rent" for the privilege of trading from the premises.

It also explains the mushroom growth of charity shops; it is cheaper to allow a charity shop to occupy for nothing and thus reduce the business rates tax by 75% than leave the property empty.
In fact it is cheaper to pay the charity to be in residence.

Traditionally farm land did pay a tax of 10% on everything produced - http://en.wikipedia.org/wiki/Tithe

These days the rest of us have to pay a subsidy of something between £50 and £100 per acre.

Funny old world.

Randvegeta

1. All rich people who don't work, make no contribution to the economy.

There is in practice little or no difference in the economic consequences, if they invest their money in property and gain rent or they invest in shares and gain dividend or put it in saving accounts and gain interest.

In none of these situations are they doing any useful work that increase the wealth of the economy.

I only partially agree with this. For 1, investing in a new business, or buying newly issued shares means the money DOES go into the company which would hopefully create jobs and output etc.

Secondly, if a rich person invests in shares overseas, the returns would be remitted back home. Even though Mr. Rich does not do anything productive, s/he is sucking money from abroad increasing the wealth of the home country. This also applies to any property they own abroad but it is less easy to own property abroad than shares.

Conversely, foreigners can buy property and shares in the UK and remit back to their home country. So discouraging land ownership in my mind is a good thing as it keeps REAL wealth in the country.

Finally, if we apply a similar 'tax' to all forms of unearned income, would rich people not simply spend the money? Would that not be a good thing? The way I see it, if rich people are taxed highly on property, if they want REAL estate, they will 'invest' abroad and bring in more money into the country (thats good). If they invest in overseas companies and get back dividends that's also a good thing. If they invest in local companies, then I suppose the act of buying creates some liquidity in the market and makes it easier for other businesses to get real investment with NEW capital. No liquidity and people may never invest.

3. Tax

The rental business is taxed like any other business on it's profits.

I am a supporter of land value taxes on all land, so that society benefits from the land values created by society; these would apply to all land used for all purposes and ownerships.

The land value tax sounds like a good tax to be honest. Why don't they do it? I think there should be allowances though. Perhaps there should be a tax threshold whereby only properties over X would be taxed (an it would be aggregate value).

5. Business Property

I'm amazed you say people don't 'care' about business costs as if they don't matter.

Surely you realise that ALL business costs are passed onto consumers? (i.e. you)

Well I care, but I don't imagine people care that much. Whether they should care is another question. Besides, commercial and industrial rents I suppose only indirectly affect consumers. For example, if the rents are expensive, causing goods and services offered by certain companies to be expensive, then the consumer can choose weather or not to buy it. People care about their necessities more, like food, utilities and rent. And companies like Tesco and Sainsbury's already buy cheap land out of the city's, presumably to pass savings onto the consumer?