Private rentals cost the state less than council homes

the_flying_pig

the OP's example is a complete nonsense.

wanting to argue both that BTL is fantastic for society and that we're due rampant HPI is, well, it's just not internally consistent.

if [as per OP] housing costs double every decade then building council houses is the only way forward.

to keep it simple i'll ignore the fact that government can, right now, borrow absurdly cheaply & that a large housebuilding program would create jobs and therefore income tax/national insurance receipts [& also lead to loads of VAT receipts etc].

imagine that [today, i.e. in 2015] government needs to house someone in a £100k house. imagine that 'market' rents are £5k a year & that this is the same as as the cost of servicing £100k worth of debt.

in 2015, council house costs £5k p.a., simply paying HB costs £5k p.a..
if housing costs double within a decade
then in 2025, that same council house will be costing £5k p.a., whereas HB will be £10k p.a.
in 2035 it's £5k p.a. vs. £20k p.a.
in 2045 it's £5k vs. £40k p.a.

etc etc etc

the fact that some [not many] of the extra cost generated by HPI is clawed back through tax is relevant but only barely, it's a second order effect.

patman99

Let's not forget that when a private rental tenent is in receipt of HB, the money goes from the Council benefits budget to the tenent and on to the LL.

Thus, a tenent receiving £6,500 p/a in HB will cost the Council £6,500 p/a.

HMRC may well get a % back in Tax (assuming that the LL has not registered his company and all it's housing stock and bank accounts in an off-shore tax haven).

The same tenent in a LA property and in receipt of £6,500 in HB will be paying that back in rent to the LA s/he is renting from. As a result, the whole £6,500 (+ any top-ups) goes back to the LA (or it's ALMC).

This money is what is used to repair/refurbish the LA's housing stock, thus taking the strain off the local Council Tax payer.

My LA's ALMC makes around £2m p/a clear of expenses. This has just funded 35 new LA houses and reduced the reliance on the private rental sector by 35 persons.

cells

If we look at a owner home vs a rental home its clear the rental home pays considerably more tax than the owner home. The rental pays income tax (at 40%-45%) while there is no income tax on the owner homes imputed rent. The rental pays CGT while the owner home doesn't.

That seems pretty clear and obvious.

But i am not sure how to compare it to the council home vs rental. The council home doesn't pay CGT or income tax is that correct?

I think its also clear that the private rented home pays considerably more tax than the council home.

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So far I think we can conclude if the governments aim is to try and maximise taxes then it would be happy to see more and more renters and less owners.

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The water gets a little more muddy when it's poor people in Private homes vs poor people in council homes.

At the point a house is built it can be bought by a BTLer or by the council. Say the council charges £500 a month and the BTLer £800 a month.

Traditionally people would think and claim private renting is costing the state £300 more but since the private landlord is paying taxes (we can argue how much for various examples and assumptions but its clear there is a sum paid annually and on sale) so the true figure is definitely below the £300 differential but might it could it be negative?


This intuitively feels wrong. Maybe I am making a doubles accounting mistake somewhere?

Graham_Devon

cells wrote: »

If we look at a owner home vs a rental home its clear the rental home pays considerably more tax than the owner home. The rental pays income tax (at 40%-45%) while there is no income tax on the owner homes imputed rent. The rental pays CGT while the owner home doesn't.

Having looked at the property118 forums recently regarding the BTL tax changes, many are paying no where near this much tax.

Hence why so many are suggesting they will go under if the tax changes are bought in (though I think going under is used in place of "making less").

cells

I think I have figured out one of my mistakes. For arguments sake let's say the council charges £500 a month. Although the council doesn't pay tax on that presumably all that £500 is cost so its employee's pay income taxes on that £500 let's say at 15% so the cost to the gov of the council home is £425 a month

The landlord who charges £800 a month probably pays 40% income tax so its costing the state £480

So what appears to be a £300 more expensive private rental is in fact closer to £55 more expensive

Also I think I have figured out the capital gains bit. The landlord will pay capital gains which will make the private rental cheaper than the social rental. However the council Property will also appreciate in value. The governments Doesnt get cold hard cash to use but its assets prices have gone up

So in summary I would conclude benifit claimants in a private rental cost a lot less than initially imagined and it will depend on the exact area and price difference between the private rental and the social one

Private tenants paying their own way are George Osborne's best friend and fingers crossed they don't become owners as he can't tax the imputed rent or the capital gains

Graham_Devon

cells wrote: »

I think I have figured out one of my mistakes. For arguments sake let's say the council charges £500 a month. Although the council doesn't pay tax on that presumably all that £500 is cost so its employee's pay income taxes on that £500 let's say at 15% so the cost to the gov of the council home is £425 a month

Why 15%? Why not just the standard 20% rate?! A 15% rate doesn't even exist.

The landlord who charges £800 a month probably pays 40% income tax so its costing the state £480

The huge mistake here is assuming that the landlord has no tax deductible expenses, such as the biggy, mortgage interest. You've then gone on to assume they are higher rate taxpayers.

So what appears to be a £300 more expensive private rental is in fact closer to £55 more expensive

And the rest.

I don't mean to sound naggy, but I'm not even all that switched on and can see the glaring errors in your methodology.

cells

Graham_Devon wrote: »

Why 15%? Why not just the standard 20% rate?! A 15% rate doesn't even exist.



The huge mistake here is assuming that the landlord has no tax deductible expenses, such as the biggy, mortgage interest. You've then gone on to assume they are higher rate taxpayers.



And the rest.

I don't mean to sound naggy, but I'm not even all that switched on and can see the glaring errors in your methodology.

Why 15% it is just a guess as the first £10k is tax free so if the council has someone Manning a phone waiting for tenants to call in about repairs and maintenance and pay that person 18k a year the income tax will be about 20% on 8k = £1.6k out if 20k which is less than 10%

Actually I've just confused myself a bit. This guy Manning the phone its silly to assume he would be unemployed if the councils didn't do council homes. He would most likely be employed somewhere else so does Hus income taxes count at all? I am now inclined to think not!

Whereas private landlords they are either retired or work another job so no double accounting.

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Landlords might have costs but those costs (like hiring a plumber to fix something) means the plumber pays the tax.

I think most landlords are higher rate payers all of the ones I know are

Mortgage interest. Majority if landlords own outright something like 5 million rentals and 1.6m or so BTL mortgages (from memory but you get the point)

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I am switched on and I think its going to be cheaper in areas of lower rents and more costly in areas of higher rents

If the councils were changing full market rent (and hence paying corp taxes and keeping the difference above costs) then without a doubt its better for the state that the state is the landlord however the fact that they charge costs means its likely that in some cases (eg in parts of the country where renting privately is cheap almost as cheap as social) the private rental will be cheaper for the state whereas in other areas with expensive private rents its probably the opposite but not by a lot

wotsthat

ukcarper wrote: »

I'd say it is as the cost of buying is no more than rent as both are subsidised most people who could afford to buy bought admittedly not everyone but the majority. What would you do in that position buy knowing at some time you will own outright and be rent free or carry on paying increasing rent.

If someone has the mindset that rent is dead money I don't see why they would've spent so much time renting they built up a decent RTB discount. You're projecting our mindset onto others.

If this was how they thought they would've stayed owners after buying but I'd wager a good proportion sold up and found their way back to social housing in due course.

cells

Let's assume a London council decides to sell off one of their flats they used to let to a social tenant for £700pm at auction they get £400,000 and a rich landlord buy it for cash

The landlord let's it out and gets £2000 a month and pays £800 of that over as income tax. The council also gets £500pm in interest on their £400k. The state is making £1300 per month on this rental property while it was making zero before the sale.

That is a very significant sum of money

If the property is tenanted to someone paying their own way that's a fantastic move for the state.

If the property is tenanted to someone receiving housing benefits of £2000pm the state is paying only £700pm (as its getting £1300pm in taxes and interest from the sale of the property). And that's how much they were paying before the sale...

Graham_Devon

cells wrote: »

Why 15% it is just a guess as the first £10k is tax free so if the council has someone Manning a phone waiting for tenants to call in about repairs and maintenance and pay that person 18k a year the income tax will be about 20% on 8k = £1.6k out if 20k which is less than 10%

Errr - the landlord has a 10k tax allowance too - you didn't reduce his percentage?!

Income tax is also staged. You don't pay 40% on your entire income.

All I'm doing here is pointing out how loaded your sums are in favour of the private landlord.

You've totally ignored the comment from the flying pig regarding following years.

If you really wanted to get into the nitty gritty of the sums when it comes to all of this stuff, you would have to take into account the B&B costs councils need to pay to private tenants thrown out after notice from their landlord. That's just one example of many extra costs for the council of having to work with a system they do not control, with stock they do not control.

The cost of monthly rent alone simply isn't the whole picture. Without stocks, the council is always at the mercy of landords, and therefore at the mercy of the market in general. No business would run this way.