Would this wheeze help with house prices?

westernpromise

I am more than ever convinced that a secular solution to the problem of high house prices needs to be found. The knee jerk assumption is that prices are high because supply is constrained. While that's somewhat the case, it does not follow that the obvious way to increase supply is to build more houses. We don't really need any; we just need to use what we do have more efficiently.

What we need is to increase supply by making it more attractive to sell. Here are two proposals.

A lot of empty nesters occupy houses that are too big for them. We are a family of four living in a four-bedroom semi; my mother lives alone in a five-bedroom detached that's at least double the size of ours.

So I'd increase the IHT rate on the property element of estates. If you're in a million quid house that's too big for you, and your heirs are going to pay say 60% IHT on that house but 40% on the cash, you've an incentive to turn that into a £400k house and £600k cash. You'll save your heirs £200k.

Along with that I'd reduce stamp duty to a flat 1%. All those empty nesters in big houses would be far more likely to flog them and downsize if it weren't for the £100k bill - mostly tax - involved in doing so in the SE, where a decent family home for as little as £1.5 million is quite hard to find. So they sell up to reduce their future IHT bill at little to no cost. A developer buys it and makes it into three flats. Job done,

I've not done the numbers on this but I wouldn't be surprised if the first measure turned out to be able to fund the second. Not everyone will downsize and beyond a certain point nor can you, so the tax take from IHT would probably rise from £4.7 billion. Abolishing stamp duty completely would cost £12 billion but reducing it to 1% might actually increase receipts, because in tandem with the previous, there would obviously be more transactions - Laffer curve 101.

I think it's a winner. What does the panel think?

GunJack

I still don't recon you'd get that many oldies willing to sell the old family home until they absolutely have to, it's one of the few things that may help with their memories......

cells

Its an interesting idea that property is taxed more on IHT than other assets. If you feel there is a need for this type of thing I think it would be more effective to take property out of the tax free portion of IHT so all property pays a flat 40% on death.

Not only would this result in the old ones downsizing it will very likely result in the old ones selling and either 1: renting likely a much smaller place or 2: moving in with family for their last few years. I think more of 2 will happen than 1

westernpromise

GunJack wrote: »

I still don't recon you'd get that many oldies willing to sell the old family home until they absolutely have to, it's one of the few things that may help with their memories......

Which is fine, but if so, the higher IHT they'd pay would help fund the near-abolition of stamp duty charged to those who do choose to move.

Something else I have just thought of is that if this did incentivise people to move house, it would provide a further indirect tax gain to HMG, in that there would be fewer equity withdrawal deals done. Typically someone with a million quid house might take £50k out of it and it rolls up into a debt of £100k when they die. They spend the £50k now and of course the £100k debt is later deductible against IHT. So HMG gets 40% of the net £900k rather than a million.

Under my scheme some of those owners would sell up instead, turn the house into a £750k house and £250k cash, a pay a little stamp duty now, and spend the same £50k out of the sale proceeds. On death the estate is wound up and it's now a £950k estate rather than a £900k.

sann420

I personally think the stamp duty should be lowered on the property that will be owner occupied and much higher on BTL.

In the past 10 odd years this whole new whole industry has popped up of refinancing your existing properties to buy new ones which has left dozens of properties in the hands of 28 year olds where as on the other end there are 40 year olds who are still struggling to save the deposit for their first home.

HAMISH_MCTAVISH

Crikey.

People seem determined to come up with ever more complicated excuses for not building more houses.

The solution to a housing shortage is not to force people to live in a type of house they don't want to live in - it's simply to build more houses.

AnotherJoe

What does the panel think?

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That it would make a trivial difference to the fundamental problem that there aren't enough houses.

Apodemus

AnotherJoe wrote: »

What does the panel think?

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That it would make a trivial difference to the fundamental problem that there aren't enough houses.

In part, the problem is also about the number of households. I'm not talking about immigration, but the big increase in expectations that individuals live in single-occupancy dwellings often with an excess of rooms. Most divorces/separations result in two households instead of one. Most young couples want a starter home that will accommodate a growing family before it has been created. And so on. In part we have created an excessive demand that we are struggling to meet. While under-occupation by the elderly is a component, it is not the only part of the market where this exists. Nor do we in general across the country (outside of a few isolated parts of the market) do high density housing that is sufficiently attractive to the general population that it becomes the aspirational purchase.

Culturally, in UK, we just don't make efficient use of our housing resource and continue to only build properties that perpetuate the problem.

ukcarper

As an older person under occupying a large house who has considered downsize I would say the things stopping me are lack of suitable properties at a price that would make it worthwhile and the cost of moving.

p00hsticks

westernpromise wrote: »

A lot of empty nesters occupy houses that are too big for them. We are a family of four living in a four-bedroom semi; my mother lives alone in a five-bedroom detached that's at least double the size of ours.

westernpromise wrote: »

All those empty nesters in big houses would be far more likely to flog them and downsize if it weren't for the £100k bill - mostly tax - involved in doing so in the SE, where a decent family home for as little as £1.5 million is quite hard to find.

westernpromise wrote: »

I think it's a winner. What does the panel think?

What do I think ? That, as with Brexit, there is a bubble of well off people living in the south east that appear to have no idea how the majority of people in the rest of the country live or think. Talking about "a decent family homes for as little as £1.5 million" you might as well be talking about living on Mars for the vast majority of people. Tweaks to IHT only impact those estates who actually pay it - a minority.

ukcarper

p00hsticks wrote: »

What do I think ? That, as with Brexit, there is a bubble of well off people living in the south east that appear to have no idea how the majority of people in the rest of the country live or think. Talking about "a decent family homes for as little as £1.5 million" you might as well be talking about living on Mars for the vast majority of people. Tweaks to IHT only impact those estates who actually pay it - a minority.

I think you are talking mainly about London I live in a 4 bed in the south east commuting distance from London and it's worth no where near £1.5m