Private rentals cost the state less than council homes

cells

Private rental sector cheaper than the social sector?

£100k buy. sell for £200k in ten years. £28k CGT or £2.8k pa

Net rent £6k pa. £2.8k pa income tax

Total annual tax £5.6k

Total rent £7k pa

If the rent is paid by housing benefit the gov pays the landlord £7k pa but gets 5.6k pa back as tax. Only costing £1.4k pa

Social sector doesn't pay income tax or CGT. So someone in a council flat getting £5k a year in housing benifit costs £5k

1.4k private 5k social??

So in this example of a cheaper market area is the private rented sector really costing the state a lot less money or have I made a mistake somewhere?

cells

Even in an expensive area I think this might hold true?

Buy £100k property in London in 1995.
Charge £1k per month
Just happen to have housing benefit tenants for 20 years. Sell for £500k

Total rent paid by HB = £240k
Income tax paid on that by landlord = about £80k
CGT paid on sale £112k

Cost of this private rental to the state 240-80-112= £48k over 20 years

The same tenant getting HB to live in a council flat would cost maybe £600 a month over 20 years = £144k

cells

And of course private rented homes with people paying their own rent make an absolute killing for the state rather than the renter having been an owner

In the London example above the state takes in close to £200k in tax while if it was an owner home the state would have got nothing. (No CGT no income tax on imputed rents). A million such London renters rather than London owners could be a £200B windfall for HMRC that's serious money

I'm beginning to see maybe why the treasury isn't so bothered by the rise in the private rental market and the fall in ownership

chucknorris

cells wrote: »

I'm beginning to see maybe why the treasury isn't so bothered by the rise in the private rental market and the fall in ownership

TBH it isn't something that I have thought about, until you brought it up, we do not rent to people on HB, so the Gov isn't paying any of our rents. But we do pay over £40k income tax annually on our rental profits, and when we sell up we will be paying over £1m in CGT.

HappyMJ

cells wrote: »

Private rental sector cheaper than the social sector?

£100k buy. sell for £200k in ten years. £28k CGT or £2.8k pa

Net rent £6k pa. £2.8k pa income tax

Total annual tax £5.6k

Total rent £7k pa

If the rent is paid by housing benefit the gov pays the landlord £7k pa but gets 5.6k pa back as tax. Only costing £1.4k pa

Social sector doesn't pay income tax or CGT. So someone in a council flat getting £5k a year in housing benifit costs £5k

1.4k private 5k social??

So in this example of a cheaper market area is the private rented sector really costing the state a lot less money or have I made a mistake somewhere?

The maths you have provided gives some very optimistic figures. Doubling of house prices in 10 years is unrealistic. I purchased my house in 2002 for £80k and it's now worth £140k. It's 13 years and the value hasn't doubled yet. Due to PRR, lettings relief and CGT allowances no CGT is due if I were to sell now. Even if it increased in value in the next 10 years to £200k there would only be a small CGT bill of up to £4,000 or £300 for each year of letting. At least that's what I expect it to be.

My gross rent is £7,200 a year and I pay no income tax on that due to expenses reducing profit to almost nothing and in any case it does not exceed my personal allowance. VAT is paid on fees and expenses adding up to about £200/year.

So in my case the HMRC gets £10 a week in taxes. If the rent were to be paid by Council they would pay up to £6,500/year. So £6k private or £6k social for the equivalent housing association property in the area. Neither is cheaper.

wotsthat

Any system where the state builds a house, subsidises a lifetime of rent based on a single moment of need and then gifts the lucky lottery winner a house is bound to be more expensive than most options.

It almost doesn't need any sums.

ukcarper

wotsthat wrote: »

Any system where the state builds a house, subsidises a lifetime of rent based on a single moment of need and then gifts the lucky lottery winner a house is bound to be more expensive than most options.

It almost doesn't need any sums.

I'd say that the vast majority of people in council houses need to insubsidised housing as anyone who didn't would have bought theirs years ago.

wotsthat

ukcarper wrote: »

I'd say that the vast majority of people in council houses need to insubsidised housing as anyone who didn't would have bought theirs years ago.

The lack of homeowner status isn't an indicator that people need subsidised housing.

If I'm getting free gruel I'm less likely to invest in a gruel factory.

Norman_Castle

wotsthat wrote: »

Any system where the state builds a house, subsidises a lifetime of rent based on a single moment of need and then gifts the lucky lottery winner a house is bound to be more expensive than most options.

It almost doesn't need any sums.

Calculations based on facts tend to be more accurate than resentment based assumptions.

Graham_Devon

wotsthat wrote: »

It almost doesn't need any sums.

No, not if you fear your position may be challenged. I note, for example, you refer to lifetime tenancies....again to prove your point.. Something which no longer exists.

As for the OP's sums. Wildly out. I note that the 200k house still commands the same 7k rent as it did 10 years previous for instance.

And that's just the start.

Think it's called confirmation bias. And this thread has it by the bucketload.

wotsthat

Norman_Castle wrote: »

Calculations based on facts tend to be more accurate than resentment based assumptions.

Did you forget to include these fact based calculations in your post or did you think this was a debate about how nice I am?