Should HPI be taxed as Capital Gains

MFW_ASAP

As a way of dampening down the housing market and helping to help balance the country's books via an increase in taxation, should house price gains on principle homes be taxed in the same way as investment properties are?

How it would work is that when a home is sold, the difference between the original purchase price, plus any expenditure such as extensions, kitchens, etc. should be subtracted from the sale price and the rest should be subject to Capital Gains tax.

The revenue raised from this could then perhaps be ploughed back into the construction industry by paying for affordable homes or infrastructure projects.

The standard £10k tax capital gains tax free allowance would come into play, giving the home owner a tidy tax free profit, but helping to stop any excessive profits from property. It would also close any loopholes where people live in their investment properties for a period of time before selling, claiming them to be their main home and pocketing the tax money. It would also stop property 'flippers' who move from home to home, do a bit of decorating and then sell the house for a tax free profit.

It would be a much fairer system than the current stamp duty one for raising revenue from house sales.

IronWolf

No. We should make the labour market more mobile, not less, if we want unemployment down.

And scrap stamp duty below £500k too.

THE_MASKED_TURNIP

Absolutely not.

martinsurrey

MFW_ASAP wrote: »

As a way of dampening down the housing market and helping to help balance the country's books via an increase in taxation, should house price gains on principle homes be taxed in the same way as investment properties are?

How it would work is that when a home is sold, the difference between the original purchase price, plus any expenditure such as extensions, kitchens, etc. should be subtracted from the sale price and the rest should be subject to Capital Gains tax.

The revenue raised from this could then perhaps be ploughed back into the construction industry by paying for affordable homes or infrastructure projects.

The standard £10k tax capital gains tax free allowance would come into play, giving the home owner a tidy tax free profit, but helping to stop any excessive profits from property. It would also close any loopholes where people live in their investment properties for a period of time before selling, claiming them to be their main home and pocketing the tax money. It would also stop property 'flippers' who move from home to home, do a bit of decorating and then sell the house for a tax free profit.

It would be a much fairer system than the current stamp duty one for raising revenue from house sales.

person A buys a family house in thier mid 20's say £150k

by thier mid 40's (20 years) they have to move for a job, house prices have risen by 150% thats a £225k capital gain, so they have to pay £60k tax roughly.

so now they have to downsize to move for work, or not move at all, and get a job not suited to thier talents.

(person A could be a doctor, moving to become a specialist at a hospital, but decides not too as the tax burden of moving is too high)

TERRIBLE idea.

System

martinsurrey wrote: »

house prices have risen by 150% thats a £225k capital gain, so they have to pay £60k tax roughly.

.

But prices wouldn't have risen by 150%. That's an assumption based on the current tax-free regime.

A more fundamental objection to the idea is to face the fact that if market forces are through shortage of supply driving prices upwards, you cannot contain them by arbitrary dictat or any other intervention.

michaels

Yes

But it should work like this:
Only gains above cpi should be taxed - otherwise it is taxing inflation.
Only funds withdrawn from the housing market should be taxed,so no tax is payable if moving to a house of the same or higher value
A 'tax credit' should be earned, refundable if repurchasing property so if moving out of an owned property, renting for 6 months and then purchasing again the tax paid could be refunded.
For pensioners the tax should be defer-able to death so they are not penalised if choosing to downsize.

Why is this fair? As a society to restrict the amount of land that can be built on. this hands a gain that should accrue to everyone to individuals who have property. Taxation is a way to share individual gains to society as a whole.

MFW_ASAP

Clifford_Pope wrote: »

But prices wouldn't have risen by 150%. That's an assumption based on the current tax-free regime.

A more fundamental objection to the idea is to face the fact that if market forces are through shortage of supply driving prices upwards, you cannot contain them by arbitrary dictat or any other intervention.

Agree with your first point.

With the second point, if the additional taxation was actually used to build new houses, then this would help to alleviate housing demand, especially for low paid workers seeking LA housing. The trouble comes when taxation is put in a central pot and spent elsewhere. If all the taxation around transport (fuel duty, vehicle tax, etc.) was ploughed back into transport, then we'd have the best roads/rail links in the world!

MFW_ASAP

IronWolf wrote: »

No. We should make the labour market more mobile, not less, if we want unemployment down.

And scrap stamp duty below £500k too.

Perhaps those who want to be mobile for work would find renting preferable to buying and the workforce would be even more mobile and flexible?

The main issue most people have with renting is security of tenure and lack of rent controls - something that can be fixed by legislation and it would have a higher profile with politicians if a lot of middle class professionals were renting rather than buying. It would also move the UK away from this crazy and self defeating obsession with owning a home and we'd move to a more European model. Instead of all our wealth and endeavour being invested in a single asset, people would be more inclined to put their money into shares and bonds because they would get a better return and a better tax treatment (in ISAs and Pensions). This would help companies expand, employing more people.

If we didn't have crazy HPI, we wouldn't have people clamouring to buy houses because they are afraid of 'missing the boat' or being 'priced out'. Houses would be homes and not investments.

AndyGuil

I think this would be too open to loop holes. Also if there is a crash or long term fall in prices then everyone will be writing tax off which will cause a massive loss to the UK tax intake.

An obvious loop hole would be to write off the cost of the new house against the sale of the old one.

Transfer the asset to foreign control, no CGT.

Write off other CGT losses against the house.

Etc..

CLAPTON

MFW_ASAP wrote: »

Perhaps those who want to be mobile for work would find renting preferable to buying and the workforce would be even more mobile and flexible?

The main issue most people have with renting is security of tenure and lack of rent controls - something that can be fixed by legislation and it would have a higher profile with politicians if a lot of middle class professionals were renting rather than buying. It would also move the UK away from this crazy and self defeating obsession with owning a home and we'd move to a more European model. Instead of all our wealth and endeavour being invested in a single asset, people would be more inclined to put their money into shares and bonds because they would get a better return and a better tax treatment (in ISAs and Pensions). This would help companies expand, employing more people.

If we didn't have crazy HPI, we wouldn't have people clamouring to buy houses because they are afraid of 'missing the boat' or being 'priced out'. Houses would be homes and not investments.

the European model is to have a HIGHER level of home ownership (at 72%) than the UK (at about 68%)


rent controls encourage demand and suppress supply


the price of property is currently determined by supply and demand : to reduce the price we need more supply

Perversely it will encourage frequent moving : if one person moves once in 20 years, that person will pay a large tax
if you move 10 times in 20 years starting and finishing in a similar house to the other person you will pay much less because of the cgt annual exemptions.


Anyway a massive vote loser.

MFW_ASAP

AndyGuil wrote: »

I think this would be too open to loop holes. Also if there is a crash or long term fall in prices then everyone will be writing tax off which will cause a massive loss to the UK tax intake.

An obvious loop hole would be to write off the cost of the new house against the sale of the old one.

Transfer the asset to foreign control, no CGT.

Write off other CGT losses against the house.

Etc..

Those aren't loopholes, that's exactly how capital gains works. If you don't make a profit then you don't pay tax on those profits. It's exactly the same as you don't pay income tax if you have no income.

Capital gains is already in existence for investment properties, it's just a case of extending it to all properties. The tax is paid on profit, so any costs in realising that profit (estate agent costs in selling previous home, legal costs in selling and buying would be taken off the profit).

Gains on a house would be exactly the same as gains on shares or other investments, why then should it be treated differently. Why shouldn't you be able to offset CGT losses in one investment against CGT gains in another investment?

I just find it fairer to tax profit than to apply punitive taxation just for buying a house (via stamp duty).