A tax-efficient alternative to pensions?

kidmugsy

Keep, or restart, your mortgage until age 99.
https://www.theguardian.com/money/2018/may/19/mortgage-99-years-old-aldermore-bank-mature-borrowers-home-loan-later-life

You get to exploit the absurdly favourable tax regime for owner-occupied housing for much of your life then you use your house to help fund your old age.

That tax deal: No income tax on the imputed rent (Conservative government). No capital gains tax (Labour government). Favoured treatment for inheritance tax (Coalition government). Property tax levels much lower than in (for example) many parts of the US (all governments).

Plus no new building at a rate that could threaten your property values (all governments).

zagfles

kidmugsy wrote: »

Keep, or restart, your mortgage until age 99.
https://www.theguardian.com/money/2018/may/19/mortgage-99-years-old-aldermore-bank-mature-borrowers-home-loan-later-life

You get to exploit the absurdly favourable tax regime for owner-occupied housing for much of your life then you use your house to help fund your old age.

You mean borrow money (secured on your house) to fund your old age.

That tax deal: No income tax on the imputed rent (Conservative government).

Why is that "favourable" treatment for housing? Do you pay "imputed rent" for other things you own?

Do you pay tax on your car based on what you'd get if you rented it out? On your furniture? On your TV? On your PC? On your clothes? On your pension/ISA? Etc etc.

You don't pay tax on "imputed rent" on anything you own. Housing is treated exactly the same as everything else you own in this respect.

No capital gains tax (Labour government).

This is favourable treatment compared to unwrapped assets, personally I'd abolish the exemption with the exception of being allowed to roll forwards to a new property (so you only pay when you cash in property - eg sell without buying or moving downmarket).

But pensions and ISAs have exactly the same favourable treatment.

Favoured treatment for inheritance tax (Coalition government).

Not as favourable as pensions. Up to a million completely outside the scope of IHT (usually).

Property tax levels much lower than in (for example) many parts of the US (all governments).

But it is taxed. Effectively a wealth tax or a capital tax. No such tax on pensions, or even ISAs.

Plus no new building at a rate that could threaten your property values (all governments).

The supply of properties has increased must faster than the population. But the number of people per property has gone down, however this trend won't continue for ever.

Overall - pensions and ISAs have far more favourable tax treatment than housing.

kidmugsy

zagfles wrote: »

Why is that "favourable" treatment for housing? Do you pay "imputed rent" for other things you own?.

It's favourable because for many years there was income tax to pay on imputed rent and then the 1963 budget eliminated it.

zagfles

kidmugsy wrote: »

It's favourable because for many years there was income tax to pay on imputed rent and then the 1963 budget eliminated it.

So it was unfavourable then. Now it's the same as everything else, so not "favourable".


It's a bit like saying the law is now favourable to gay people, just because it was unfavourable to them in the past.

Paul_Herring

From the comments:

I find this sort of age discrimination absolutely sickening.

My son, who is 101, will never get on the housing ladder at this rate.

kidmugsy

Taxing the imputed rent on houses is a rational way of equalising the treatment of renters and owner-occupiers. The rent charged is partly a function of the landlord being taxed on the rents he receives; taxing the imputed rent evens things up, albeit roughly. That's rational since it's no business of the government to favour the one sort of housing tenure over the other.

I suspect the reason for abolition was simple vote-buying. Maybe it made some sense in an era when a huge number of tenants were in council housing, so that they were subsidised as an exercise in vote-buying by the other side of politics. But nowadays it makes much less sense.

So, bring back income tax on the imputed rent. Apply capital gains tax to owner-occupied housing (after index-linking, of course - the only rational way to have a CGT system). Soon the housing market would readjust and young people could afford housing again - though of course their demand for buying houses would slacken when they saw that all the tax favouritism had been removed. After all, when they attempt to wring our heartstrings with tales of their inability to get "on the housing ladder" they are really just complaining that they can't get their snouts in the trough too.

zagfles

kidmugsy wrote: »

Taxing the imputed rent on houses is a rational way of equalising the treatment of renters and owner-occupiers. The rent charged is partly a function of the landlord being taxed on the rents he receives; taxing the imputed rent evens things up, albeit roughly.

Landords aren't taxed on the rent they receive. They are taxed on their profit, which will be rent minus mortgage, insurance, maintenance, agents costs etc.

That's rational since it's no business of the government to favour the one sort of housing tenure over the other.

It's not rational unless you apply it to everything you own. I've just bought a spade to dig the garden. Should I be taxed on what it'd cost to rent it?

I suspect the reason for abolition was simple vote-buying. Maybe it made some sense in an era when a huge number of tenants were in council housing, so that they were subsidised as an exercise in vote-buying by the other side of politics. But nowadays it makes much less sense.

It makes no more sense than taxing my spade. If you want to tax property, there are far better ways to do it. We already have a property tax, council tax. That could be increased/tweaked. But rather than being taxed simply for owning a property, which would increase costs and make property less affordable for everyone, it'd be far better to tax housing profits...

So, bring back income tax on the imputed rent. Apply capital gains tax to owner-occupied housing (after index-linking, of course - the only rational way to have a CGT system).

With roll-forwards - that makes sense. Without roll-forwards, people would struggle to move upmarket as they might have to pay CGT on their old house at a time when they are faced with the other additional costs of their new more expensive house.

Roll-forwards doesn't avoid the tax, it just delays it, so can't see any reason not to allow it.

Soon the housing market would readjust and young people could afford housing again - though of course their demand for buying houses would slacken when they saw that all the tax favouritism had been removed.

Which would be a good thing. Demand should be skewed towards those who want a roof over their head, not those who want to profit from housing. The problem is the (albeit flawed) premise of this thread - that housing is a tax efficient (and good) investment. It's certainly not tax efficient, compared to pensions.

After all, when they attempt to wring our heartstrings with tales of their inability to get "on the housing ladder" they are really just complaining that they can't get their snouts in the trough too.

Yeah, it's not like they actually want a roof above their heads or anything...

Personally I'd be in favour of higher taxing on housing, to reduce the investment led demand in the market so demand comes more from those who need accomodation rather than those who want to make money.

But the original premise of this thread, that housing is a "tax efficient alternative to a pension", is frankly rubbish. But I wouldn't mind it if it became even more rubbish...so people finally get the message.

Terron

zagfles wrote: »

YThe supply of properties has increased must faster than the population. But the number of people per property has gone down, however this trend won't continue for ever.

The trend has already reversed.
https://medium.com/@ian.mulheirn/why-is-household-size-growing-c662cae5a69b

Note that there two markets for housing. One forr a place to live in - where the price is shown by the levels of rents . There affordability has been improving. Then thee is the market in houses as an asset, where more money id available for those who can get mortgages due to the low interest rates, but high LTV mortgages are harder to get Making it cost more to own a house would just make mortgages less affordable and keep such people out of the market.
https://medium.com/@ian.mulheirn/two-housing-crisis-87a843a9d09b

bostonerimus

Surely not an alternative to pension income. It might help people who have made poor provision for their housing costs in later life, but I like to keep things simple and if you can avoid being in debt it's usually a good thing for you and eventually your heirs.