The dissapearing property ladder

Cornucopia

I think it depends how much it is.

1-2% of gains just in London could raise quite a lot of revenue, as well as taking some of the heat out of the market.

lisyloo

always turns out to be mostly inflation, and it is thus inherently unfair to tax it.

On that basis interest on savings (up to the value of inflation) is merely inflation and shouldn't be taxed.
The bottom line is that we need to collect a certain amount of tax and it needs to be taken from people who can afford to pay it in a way that doesn't hurt them too much.
I don't think it will ever be 100% fair.

jamesmorgan

westernpromise wrote: »

The issue with CGT on homes is that all this is far too subtle for a tax. If you sell your £325k flat a year later for £400k, that's not £75k profit, that's inflation. If you sell it to a Russian millionaire a year later for £650k then buy another for £400k, that's £75k of inflation and £250k of profit. It is unlikely any tax would be subtle enough to distinguish these so as to apply only to the £250k.

On the surface, these points appear to be well made, but you need to understand a bit of the history of CGT, Until 2008, CGT was applied to any gains after indexation/taper relief (to account for inflation). The rate of CGT was 40%. In 2008, these reliefs were removed but the rate was reduced to 18%. This was a bit of a fudge, but the broad intent was that by charging a lower rate there was some compensation for inflation on capital gains.

Regarding taxation of primary residence, there are 3 main options:

a) charge on purchase (stamp duty)
b) charge for usage (council tax, mansion tax)
c) charge on exit (CGT)

By playing around with tax bands it should be possible to ensure that the total charge is the same with whichever method is chosen. It then largely becomes a decision as to which is easiest to collect and has the least distorting effect on the market. The main advantage with charging on exit is that the payer always has funds available to pay for it (from the proceeds of the sale). This is not always the case with the first 2 options. The disadvantage is that the government has to wait longest to see the money. It is no real surprise that the government favours the first option (with a bit of the second thrown in for good measure!).

westernpromise

lisyloo wrote: »

On that basis interest on savings (up to the value of inflation) is merely inflation and shouldn't be taxed.
The bottom line is that we need to collect a certain amount of tax and it needs to be taken from people who can afford to pay it in a way that doesn't hurt them too much.
I don't think it will ever be 100% fair.

I don't agree with tax on savings either as it happens. You were taxed once when you earned it.

As far as tax goes, a rational way to collect it on property would be to levy it on square footage. so it might be £1 a square foot up to 1,000 square feet, £2 up to 3,000, etc.

The stamp duty on buying a 3,000 square foot house would then be the same wherever it was. This would make people think twice about overhousing themselves in the first place, and would avoid the iniquitous situation in the south-east whereby inflation punishes you once, and you are then punished further with a tax on the inflation, in the form of SDLT.

westernpromise

jamesmorgan wrote: »

On the surface, these points appear to be well made, but you need to understand a bit of the history of CGT, Until 2008, CGT was applied to any gains after indexation/taper relief (to account for inflation). The rate of CGT was 40%. In 2008, these reliefs were removed but the rate was reduced to 18%. This was a bit of a fudge, but the broad intent was that by charging a lower rate there was some compensation for inflation on capital gains.

Regarding taxation of primary residence, there are 3 main options:

a) charge on purchase (stamp duty)
b) charge for usage (council tax, mansion tax)
c) charge on exit (CGT)

By playing around with tax bands it should be possible to ensure that the total charge is the same with whichever method is chosen. It then largely becomes a decision as to which is easiest to collect and has the least distorting effect on the market. The main advantage with charging on exit is that the payer always has funds available to pay for it (from the proceeds of the sale). This is not always the case with the first 2 options. The disadvantage is that the government has to wait longest to see the money. It is no real surprise that the government favours the first option (with a bit of the second thrown in for good measure!).

The issue with stamp duty is that in some parts of the country it is already having grossly distortive effects. I'll describe two.

One is that a landlord who buys a million quid property to let out will pay £44k stamp duty, whereas if he buys five £200k properties he'll pay £15k. As the yield is probably pretty similar, and the exposure to voids is less in the case of the five flats, he is going to go for the five £200k properties every time. These of course are closer to being FTB properties, so five FTBs face competition from him and may even lose out.

The second issue is that in areas like London the cost of moving from one house to another is now so extreme that it is cheaper, where space is the issue, to convert or extend rather than buy. If you're in a £750k house and you need one that's going to cost you a million you'll pay £44k stamp duty.

This completely trashes the built environment because it incentivises vile extensions. Have a look at Temple Fortune or Finchley on Goole Street View.

These places are usually absolutely hideous, and the process itself a nightmare for neighbours. It is a direct consequence of value-related stamp duty.

Loughton_Monkey

westernpromise wrote: »

I've been here a lot longer than you have. If you're having trouble distinguishing between profit and inflation I suggest you may enjoy the Guardian more...

You clearly do have trouble since you have dug yourelf into a big hole with your subsequent post....

westernpromise wrote: »

.....So let's compare properly and take two properties where you sell one for £250k and buy another also for £250k.

One property would then inflate by 30% to £325k and the other by 60% to £400k. You now decide to buy back your old flat, what does it cost? £325k. What's left of your gain? £75k.

So if you hadn't moved you'd have a £325k whereas you did and you now have £75k cash as well. That is your capital gain, not the whole inflated price.

The trouble is, of course, that it works both ways. Someone who moved the wrong way - from the 60% area to the 30% area - now has a house worth £325k instead of £400k. If one is a capital gain then this is a capital loss.

Do you see what you have done? Do you not understand what tripe you are writing when you write it?

You have 'inflated' one house by £75K, and another by £150K. Then you have arbitrarily divided the second example into 50% inflation and 50% profit. Had you chosen to inflate the first house by a mere 20%, would you have got £100K profit?

What about my house that inflated by 80%? Or ISTL's house that only inflated 10%. Or what about the 7% RPI Inflation over the same period. Or the 5.8% CPI inflation.

Are you completely full of hot air?

westernpromise

Loughton_Monkey wrote: »

You clearly do have trouble since you have dug yourelf into a big hole with your subsequent post....



Do you see what you have done? Do you not understand what tripe you are writing when you write it?

You have 'inflated' one house by £75K, and another by £150K. Then you have arbitrarily divided the second example into 50% inflation and 50% profit. Had you chosen to inflate the first house by a mere 20%, would you have got £100K profit?

What about my house that inflated by 80%? Or ISTL's house that only inflated 10%. Or what about the 7% RPI Inflation over the same period. Or the 5.8% CPI inflation.

Are you completely full of hot air?

Thanks for your contribution, but I think everybody except you now understands the points being made.

IveSeenTheLight

westernpromise wrote: »

Mars bars are just an analogy but the concept should be clear enough.

BTL and owner occupied houses are different asset classes.

My point exactly, I forgot you through in a watch analogy as well.

Keep changing to goalposts to try and get some sense of trying to get your point across.

Consider this. Has anyone agreed with your concept?
Certainly the HMRC would probably review your tax returns again with your incorrect assumptions

lisyloo

I don't agree with tax on savings either as it happens. You were taxed once when you earned it.

You are of course entitled to your view, but I just wanted to point out that you are not being taxed on the savings - you are being taxed on the unearned income resulting from them, so it's not the same money you were taxed on the first time.
You can still have a differing opinion but it's good to be factually correct. Tax on the earned capital is DIFFERENT to tax on the unearned income called interest.

As I said the money for the NHS etc has to come from somewhere and it has to come from people who can afford to pay it.
If you don't like the current system you need an alternative if you still want police, NHS etc.

westernpromise

IveSeenTheLight wrote: »

My point exactly, I forgot you through in a watch analogy as well.

No, that was someone else's.

Which part of my point do you disagree with?

If your house inflates by the same amount as everyone else's, what is your profit?