The dissapearing property ladder

ukcarper

As someone who has considered downsizing I feel GCT on main residents would prove a big disincentive. One of the main reasons for downsizing is to release capital and anything that reduces that would make fewer people downsize.

By the way boomers are in their 50s and 60s.

Loughton_Monkey

MFW_ASAP wrote: »

....Make your mind up, in your first statement you've argued that it's the older generation who have all the equity, now you're saying it'll hit younger people. How can younger people be liable for CGT if they haven't made any substantial Capital Gains?....

??????

Of course we have the equity! We never had to pay CGT when we moved.

Now we aren't moving, the tax people will take a lot of money away from us (as now) when we die. Not while we're alive. So if your objective is to financially rape rich boomers, your policy won't succeed

If youngsters don't make money when they up-size, then that sgnals only one thing. House prices are not going up. In which case where's the problem?

I made a profit on every one of my 7 or 8 sales.

MFW_ASAP wrote: »

....Thsi money could be used for a lot of things, not least to help build affordable housing....

I quite agree.

But I'm a miserable, greedy, self-seeking, already wealthy 'boomer' and so I want the money spent on me and other people like me. I would prefer not to see it spent on the poor or the young, since I will never again be in either category.

westernpromise

MFW_ASAP wrote: »

They should scrap stamp duty, which has always been an unfair tax and instead introduce Capital Gains tax on the sales of houses. Houses should be no different to any other financial gain (i.e. shares, bonds, interest from savings, investment property), profits should be taxed.

That would reduce the amount of money people could take out of their properties to finance BTL purchases and would reduce the amount of capital for buying over inflated houses further up the ladder.

House price inflation is not profit, it's inflation.

If I buy a Mars bar for 50p and next day I sell it for 60p, have I made a profit if the cost of another one is also 60p?

I agree stamp duty should be abolished as it is wrecking the housing stock, but CGT on what is an inflationary non-gain would be utterly vicious.

Suppose I buy a £200k house and 5 years later I need to move house to be nearer work / schools / ailing relatives. My house is now worth £250k, and so is the identical house I want to buy 10 miles away. But oh dear, I have to pay £15k CGT on my "profit" when I sell and now I can't afford the other house, because I'm £15k short (unless I borrow to pay a tax bill).

In those circumstances nobody would ever move and we are starting to see the same thing with stamp duty.

Loughton_Monkey

ukcarper wrote: »

As someone who has considered downsizing I feel GCT on main residents would prove a big disincentive. One of the main reasons for downsizing is to release capital and anything that reduces that would make fewer people downsize.

By the way boomers are in their 50s and 60s.

Few would disagree with that. But I'm afraid that there is a lot of woolly thinking these days. You probably agree.

A house is worth X. It doesn't matter (within reason) what X is, but let's say within +/- 10% of what they are now.

A house is always owned by somebody. Doesn't matter who. So if I sell mine for £1 million, and buy somewhere cheaper at £½ million, then I have £½ million in £notes. If I invest it in equities, then by definition someone has to sell the shares that I buy, and so that money reverts to cash and gets distributed into the economy. If I spend it, then it goes straight into the economy. If I put it into the bank then it gives the bank more liquidity to allow an extra mortgage over and above what they could otherwise have done.

Probably, the guy buying my house has traded up and so he will take an equivalent amount out of the economy.

Either way, all that has happened in the whole chain of events is that a couple of large assets (houses) have changed ownership, and the same amount of £notes are swishing around in the economy.

Exactly the same wealth exists. The only difference is who owns it. The more money swishing about in the economy the more chance there is for anyone to grab some of it in exchange for their labour, effort, product, or ingenuity.

This is how an efficient economy works. The minute you start grabbing more of the money for 'government' to re-distribute it (rather than let the free market do it) you are creating hundreds more non-jobs for government pen-pushers. i.e. people who have never created wealth in their lives.

This is the 'Gordon Brown' model, or taken to extremes the 'Greek' model. Is that what we want?

Physics

westernpromise wrote: »

If I buy a Mars bar for 50p and next day I sell it for 60p, have I made a profit if the cost of another one is also 60p?

You're forgetting leverage.

If I borrow £50 from you to buy 100 Mars Bars, and then the next day sell them for 60p each, I've made £10. I can even buy 20 Mars Bars of my very own now, without needing to borrow. And I started with nothing!

This, and only this, is why houses are so incredibly profitable when you buy one on a mortgage and it goes up: because you can leverage at huge multiples. The general public can't access this can't of financial leverage for anything else - not for buying Mars Bars or stockmarket investments.

MFW_ASAP

westernpromise wrote: »

House price inflation is not profit, it's inflation.

If I buy a Mars bar for 50p and next day I sell it for 60p, have I made a profit if the cost of another one is also 60p?

I agree stamp duty should be abolished as it is wrecking the housing stock, but CGT on what is an inflationary non-gain would be utterly vicious.

Suppose I buy a £200k house and 5 years later I need to move house to be nearer work / schools / ailing relatives. My house is now worth £250k, and so is the identical house I want to buy 10 miles away. But oh dear, I have to pay £15k CGT on my "profit" when I sell and now I can't afford the other house, because I'm £15k short (unless I borrow to pay a tax bill).

In those circumstances nobody would ever move and we are starting to see the same thing with stamp duty.

Perhaps we wouldn't have HPI of £50k over 5 years if we had CGT? Plus people you are competing against for the other house would also have been hit with CGT and so they couldn't afford it either. The sellers would therefore have to reduce it to a more reasonable amount.

MFW_ASAP

Loughton_Monkey wrote: »

??????

Of course we have the equity! We never had to pay CGT when we moved.

Now we aren't moving, the tax people will take a lot of money away from us (as now) when we die. Not while we're alive. So if your objective is to financially rape rich boomers, your policy won't succeed.

You're missing the point. The boomers wouldn't be sitting on hundreds of thousands of pounds of equity. House prices would fall dramtically because of the taxation and so the equity of the boomers would be removed. They can stay in their large homes, but they wouldn't be able to release equity because it wouldn't be there anymore.

chucknorris

MFW_ASAP wrote: »

House prices would fall dramtically because of the taxation and so the equity of the boomers would be removed.

All we need is a Gov. willing to commit political suicide and it is game on. The monster raving loony party look like suitable candidates. Obviously you would have to forget about your future downsizing plans/options too.

Loughton_Monkey

Physics wrote: »

You're forgetting leverage.

If I borrow £50 from you to buy 100 Mars Bars, and then the next day sell them for 60p each, I've made £10. I can even buy 20 Mars Bars of my very own now, without needing to borrow. And I started with nothing!......

A bit simplistic, but nevertheless true. One good thing about buying in the [almost hyper] inflationary period of the 70's, was that you could get a 100% mortgage. I did. And every time I upsized, I never added my own money. In fact every time, I mortgaged to the hilt and took a bit of equity out to cover expenses/improvements.

I remember distinctly the much larger Mars Bar of my childhood costing 4d. [about 1.67p]. I would be interested to learn whether or not I would have been "in pocket" had I bought 100 Mars Bars at the time.

Anyway, I tend to believe that lots of younger people these days don't view a house as an investment. In Mars Bar terms, they seem to argue that they could find the £50, but that will now only buy them 83 Mars Bars (at 60 pence). Still of course a good long term investment but by the time they might afford 100 bars, they've gone up to 65 pence. I, of course, would rush in and buy 83, and when they have increased considerably in value, buy the other 17.

westernpromise

MFW_ASAP wrote: »

Perhaps we wouldn't have HPI of £50k over 5 years if we had CGT? Plus people you are competing against for the other house would also have been hit with CGT and so they couldn't afford it either. The sellers would therefore have to reduce it to a more reasonable amount.

And therefore so would I in trying to sell my own place, in which case I am still short of the CGT.