The dissapearing property ladder

Cornucopia

Seems like you aren't listening.

Forget the jargon (some of which you're misusing).

The question is: how do we pay for public services?

The answer is: through taxes.

The corollary of that is that we endeavour to make those taxes fair and rational (and sometimes we lump other policy objectives under them, too).

You can quibble about the detail of those taxes - whether they are fair, whether they deliver on their secondary policy objectives, but it helps to have a fundamentally rational grasp on what taxation is for before you start.

westernpromise

Cornucopia wrote: »

Seems like you aren't listening.

Forget the jargon (some of which you're misusing).

The question is: how do we pay for public services?

The answer is: through taxes.

The corollary of that is that we endeavour to make those taxes fair and rational (and sometimes we lump other policy objectives under them, too).

You can quibble about the detail of those taxes - whether they are fair, whether they deliver on their secondary policy objectives, but it helps to have a fundamentally rational grasp on what taxation is for before you start.

We clearly already have taxes so far above what is fair or rational that they are no longer effective at raising additional revenue. The most obvious symptom of this is that despite a growing economy tax receipts are flat.

Well, they would be; if you take no tax you'll get no tax revenue and if you tax everything you'll get no revenue because economic activity will stop as it ceases to be worthwhile.

That seems to be about where we are. We are experiencing a real-world instance of the Laffer curve.

Graham_Devon

westernpromise wrote: »

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?

The common theme on this forum is that arguments like this often fall down because of one simple reason.

You are describing a home and the need to buy somewhere else to replace that home.

Others are talking about BTL investments where they can simply sell and pocket the increased equity.

Therefore neither party will ever agree and it will simply descend into insults.

IveSeenTheLight

westernpromise wrote: »

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?

Ok, I'll take you back a few years to a real life example.

I had a flat, did some upgrades and sold it 4 years later for 56% more.
Arguably, some of that profit was from inflation, but other parts was because of the improvements I made.
Additionally, the supply and demand market had changed impacting the price.

Because of the 56% profit + equity I had built up over the 4 years, I was able to buy a 4 bed terraced house 54% more than what I sold the flat for. I was only able to upsize because the profit and equity made over the 4 years of owning the flat.

That profit (+ equity) was used as a deposit for the larger house

Three years after moving into the house, I had the opportunity to move and work abroad. I looked into selling the house (another 48.3% increase in the valuation price) but chose to rent it out whilst I was abroad.

I could have realised the profits then by selling (property abroad was factored into the deal I had), but choose to hole

Eight years after I bought the house, I sold for 112.5% more than I bought it (+ equity). I was then able to buy a plot of ground and build my own 5 bed detached house in the countryside with great views.

The valuation upon completion was 19.4% more than the cost to build.

During this time, I have also bought BTL's, where the valuation has increased, but I have not realised the profits yet by selling them.

So you can see how the profits I made in selliing my OO home enabled me to upsize, whilst the profits (bonus) of the BTL's will only be realised once I choose to sell them.

IveSeenTheLight

Graham_Devon wrote: »

The common theme on this forum is that arguments like this often fall down because of one simple reason.

You are describing a home and the need to buy somewhere else to replace that home.

Others are talking about BTL investments where they can simply sell and pocket the increased equity.

Therefore neither party will ever agree and it will simply descend into insults.

Not at all GD.
Selling your home and realising the profit on it can assist you with reinvesting that profits in an alternative home.

I've shown above that I could not have upsized as quickly as I did without realising the profits made through HPI.

cells

Between 1900 and 2007 the household size fell, since 2007 to now the household size is increasing

Between 1900 and 2007 the owner sector expanded and the rental sector fell.

How many people can add 2 and 2 and get 4?

cells

Between 1901 to 1961 the household size of London fell

Between 1961 and 1991 the household size of London CRASHED

So much so that by 1991 London household size was the LOWEST in all of the UK! and maybe even in all of Europe

As a result in the 1990s London by capital city standards was very affordable


Between 1991 to 2015 the household size of London has boomed so now London household size is higher than anywhere else in the UK.


The story of the UK housing market, its affordability or not, is a story of household size

westernpromise

Graham_Devon wrote: »

The common theme on this forum is that arguments like this often fall down because of one simple reason.

You are describing a home and the need to buy somewhere else to replace that home.

Others are talking about BTL investments where they can simply sell and pocket the increased equity.

Therefore neither party will ever agree and it will simply descend into insults.

Actually no, Graham, I think the difference between a BTL and a main home is pretty clear. A BTL is a business asset and inflationary gain is a legitimately taxable one when you dispose of it. You have, after all, been allowed to deduct from tax all the costs you incurred acquiring it and owning it. So far, so consistent, and you can indeed take your inflation away and spend it.

The discussion was around a poster's assertion that there should also be CGT on a main home. We then moved on to the question of whether that can be considered gain at all, given that in selling the main home at an inflated price, you still need a main home and if you buy another that will ceteris paribus have inflated too. Therefore in the case of the main home, unlike the BTL, you cannot take your inflation away and spend it. You need it to replace the home.

The problem is that some posters have cash, profit, capital gain, equity and inflation confused. I suspect there may even be people above who think that, if they buy a house for £200k, sell it for £300k when its price has inflated, and buy a cheaper house for £250k, they have made a £50k profit.

You can lead a horse to water, etc.

westernpromise

IveSeenTheLight wrote: »

Ok, I'll take you back a few years to a real life example.

I had a flat, did some upgrades and sold it 4 years later for 56% more.
Arguably, some of that profit was from inflation, but other parts was because of the improvements I made.
Additionally, the supply and demand market had changed impacting the price.

Because of the 56% profit + equity I had built up over the 4 years, I was able to buy a 4 bed terraced house 54% more than what I sold the flat for. I was only able to upsize because the profit and equity made over the 4 years of owning the flat.

That profit (+ equity) was used as a deposit for the larger house

Three years after moving into the house, I had the opportunity to move and work abroad. I looked into selling the house (another 48.3% increase in the valuation price) but chose to rent it out whilst I was abroad.

I could have realised the profits then by selling (property abroad was factored into the deal I had), but choose to hole

Eight years after I bought the house, I sold for 112.5% more than I bought it (+ equity). I was then able to buy a plot of ground and build my own 5 bed detached house in the countryside with great views.

The valuation upon completion was 19.4% more than the cost to build.

During this time, I have also bought BTL's, where the valuation has increased, but I have not realised the profits yet by selling them.

So you can see how the profits I made in selliing my OO home enabled me to upsize, whilst the profits (bonus) of the BTL's will only be realised once I choose to sell them.

That's fine. That's all clear. Looking at the initial buy, you bought a place for X and sold it for 156% of X. Your actual capital gain was then 1.56X - X minus inflation (what the house would have sold for anyway even had you done nothing) minus the cost of the improvements that you did make.

So, using some made up values for the terms in that:

• you paid £100k for the house / flat
• 4 years later the identical one next door sold for (say) £120k
• you could have £120k without doing anything
• but you have spent (oh, say) £15k on it
• so in effect you own it at £135k
• and hence you can sell at £156k
• hence your capital gain was £21k.

I.e. it's 156, minus the 120 you could have got anyway, minus the 15 you spent to get better than that.

The issue is that any CGT levied on main homes would not look at it properly like that. It would treat the whole £56k as taxable gain when in fact £20k was inflation and you've had to spend £15k to get better than that.

It follows that if you had spent £40k rather than £15k on the improvements, you would actually have incurred a capital loss. You could have had £120k for it by doing nothing, from inflation, but you spent £40k to realise only another £36k of value. Despite such a loss, you would still - pace some posters above - owe capital "gains" tax on your "profit".

IveSeenTheLight

westernpromise wrote: »

That's fine. That's all clear. .

That's may be fine in theory, but in practice that is not how capital gains is calculated.

You may wan't to consider visiting this site

https://www.gov.uk/capital-gains-tax/overview

P.S. where have you calculated maintenance of a depreciating asset?