Mad Tax?

[Lord Blackadder]

http://www.timesonline.co.uk/article/0,,2087-1522980,00.html

This would surely put the cat amongst the pidgeons. Can't believe they'd do it but it would have its attractions.

- Transactions would fall of (another) cliff

- nowhere near as many EA's sponging off the rest of us

- Prices would logically fall as people saw no point in borrowing huge sums only to pay tax 2 or 3 times over the transaction life of a property.

Something must be brewing though if they're systematically sidestepping the issue. This sort of headline can therefore only create even more uncertainty and slow the market further.

Even if something is announced in the budget I don't think this will put the genie in bottle. I don't trust Brown on stealth taxes as far as I could throw him; and he is a fat so and so.

[war]

Looks like this news or rumor has come in the right time. Even if it is not there in the budget, it will hang like a Damocles` sword through the next few years if labour gets re-elected. I feel that this will also contribute to the falls in house prices.

[Michael]

It's absolutely inconceivable they'd do this but i wish they would...........

You couldn't do it when people bought another home otherwise no-one would ever be able to afford to move and transactions would fall to almost zero which would defeat the object.....If there was a way of taxing genuine realised profit from housing then i'd be 100% behind it................

[Guest consa]

Also on thisismoney

http://www.thisismoney.co.uk/

[Randall Herbert]

Quite a cunning tactic really.

'Leak' the threat of this tax through the usual channels, sidestep the issue at every opportunity and eventually after a few weeks issue a firm denial. Thus causing a mass panic amongst the BTL community who, after having subsidised their tennants for the past year are left with the stark fear that any of the paper capital gains they may have accrued (and are in it for the long run for*) will evaporate also if they sold. Nice NE trap too.

This may well hasten the stampede for the exit by budget time, thus bringing the whole house of cards down more rapidy. This may even helpfully leave Phoney Bliar and 'Crash' Gordon blame free as the demise of the latest HP bubble wold not have been brought about by another IR rise, but by the poor financial planning and greed of the BTL community themselves.

[Guest muttley]

Quite a cunning tactic really.

'Leak' the threat of this tax through the usual channels, sidestep the issue at every opportunity and eventually after a few weeks issue a firm denial. Thus causing a mass panic amongst the BTL community who, after having subsidised their tennants for the past year are left with the stark fear that any of the paper capital gains they may have accrued (and are in it for the long run for*) will evaporate also if they sold. Nice NE trap too.

This may well hasten the stampede for the exit by budget time, thus bringing the whole house of cards down more rapidy. This may even helpfully leave Phoney Bliar and 'Crash' Gordon blame free as the demise of the latest HP bubble wold not have been brought about by another IR rise, but by the poor financial planning and greed of the BTL community themselves.

<{POST_SNAPBACK}>

RH,BTLs already face 40% capital gains tax on profits from sales.This article suggests that Tony's "The best chancellor this country has ever had", is about to withdraw the exemption for OOs.

Presumably people moving up the ladder could "roll over" their profits,so this tax would only affect people selling up or trading down.Maybe it's not as mad as it first appears.

[The Masked Tulip]

I think this is simply electioneering... but am uncertain from which side... Having said that, it is also very dangerous electioneering...

The obvious source for this would be the Tories but it is also possible it is a Labour 'EU banger' type scenario - leak it one week and then valiantly deny and defeat it the next!

Such a tax would kill the housing market dead in the UK. An individual would be mad to buy even if HPs were at sensible levels but at this level - WOW. The only benefit, and this is something to consider, is Brown using it as a way to get more people to buy houses via his SIPP property route. Of course, the big black hole in his finances might be so huge that he has to now resort to such drastic action.

Of course, it would not happen in this wek's budget. Nothing negative will happen in this week's budget. All of this, should it come, would come in a real budget sometime in the Autumn after the election.

[delite1]

We pay tax on every penny we earn that sustains our existence in the UK. This is no different than many other countries, so why is it so incredible that we should not pay tax on profits we have made on our own abode. I say this as a homeowner and I do not see any problem in paying a lower rate ,say 20-25 per cent on the otherwise tax free kings ransom which I will be taking out of this country on retirement. I think the tax would just help house price become more realistic and more importantly allow investment money to go where it really should be, and that is on industry and markets, rather than having all and sundry banging on about how much money their own residence made over the last few years.

[Guest muttley]

Presumably people moving up the ladder could "roll over" their profits,so this tax would only affect people selling up or trading down.

<{POST_SNAPBACK}>

Oh,and STR....Yikes

[Tonyb69]

I often wonder what obligation anyone has to declare profits on the sale of a second home.

As far as I am aware our landlord declares that he has resided in the property and so doesn't declare any CGT. Last year he sold 3/4 properties.

These people are avoiding tax in a way that is far easier to hide than the sale of other investment. If the government were to "leak" this sort of story, maybe they are considering a tax where any second property attracts a CGT tax regardless of whether or not you have lived there and it becomes payable at the time of sale.

If the dynamics of a market change as in housing where properties are treated as short term investments, then the tax system has to change to deal with it.

Have you notice, most of the property investmet programmes ignor CGT, it's always "great you took some poor FTB for £20K more than he should of paid", but never you have to now give 40% of that to the tax man.

[The Masked Tulip]

The landlord next to me, a right scumbag IMPO who had several properties in the area and who sold up a few years back, supposedly had each of his children living in each of his properties. He had more properties than children.

I imagine he found a way to wangle out of his obligations - as with all taxes in this country the law abiding pay them and the scumbags find a way of not paying them!

[Auntie]

Front page of Mail and their website

All good stuff to add to the panic!

[King of the castle]

As usual bears rejoicing,without realising the wider implications of this, ie: not realising you'd be the first line of buyers (if you were a typical FTB) to actually pay this tax, unless you intend to stay at the bottom of the ladder all your life?

The likes of myself, [tongue in cheek] being in my castle[/tongue in cheek], at the top of the ladder wouldn't really care if we never moved again.

KOTC

[Guest muttley]

As usual bears rejoicing,without realising the wider implications of this, ie:  not realising you'd be the first line of buyers (if you were a typical FTB) to actually pay this tax, unless you intend to stay at the bottom of the ladder all your life?

<{POST_SNAPBACK}>

Not true.The person to get the capital gains is the one who has to pay the tax.Are you saying that the vendor would slap a 40% premium on the price of his house?

BTW,I realise there are good ways of avoiding CGT,so no need to tell us about how you'd never sell.

[kempstar]

Surely this would just as likely (more IMO) send prices UP rather than DOWN?

People would be far more reluctant to sell if they had to realise a huge tax bill.

[right_freds_dead]

This may even helpfully leave Phoney Bliar and 'Crash' Gordon blame free as the demise of the latest HP bubble wold not have been brought about by another IR rise, but by the poor financial planning and greed of the BTL community themselves.

<{POST_SNAPBACK}>

this is why we have the crisis in the first place.

i dont blame TB and GB for creating the bubble. i blame then for doing nothing about it. its was the media combined with public mass greed and lack of foresight that made this happen.

a cap gains tax on 2nd properties at 40% should be established. it is a profit from investing and should be subject to tax accordingly.

[JustYield]

Boateng didn't answer the question (twice). Why?

See Hansard:

 

10 Mar 2005 : Column 1677

 

Mr. George Osborne (Tatton) (Con): The Chief Secretary will have noticed with his legendary eye for detail that Government forecasts for borrowing are £34 billion this year—three times what the Chancellor himself predicted at the beginning of this Parliament. The reason for it is the black hole in Government finances. Will the Chief Secretary give the House an assurance that capital gains tax on people's homes will not be one of the taxes that Labour increases, if it wins the election?

Mr. Boateng: The hon. Gentleman knows that decisions on taxation are announced in the Budget. He also knows, as does the House, that the country believes this Government in a way that it never believed the previous Conservative Government. People know that we will do what is right by the economy and that we will keep our promises on tax. The Conservatives never did that, and as a result they presided over successive periods of boom and bust. There will be no return to boom and bust.

Mr. Osborne: People remember that the Government promised there would be no tax increases under them, but in fact there have been 66 tax rises. Will the Chief Secretary take this second opportunity to reassure home owners that capital gains tax will not be levied on their homes, and that no one in the Treasury is looking at that?

Mr. Boateng: What people know is that the Tories consistently failed to keep their promises on tax. They know that it was the Tories who raised value added tax on fuel, and gave this country double-digit inflation and interest rates and 3 million unemployed. There will be no return to the days when the Tories ruined the economy. If people compare and contrast their record on tax and growth with ours, this Government win hands down, every time.

[Guest muttley]

I say this as a homeowner and I do not see any problem in paying a lower rate ,say 20-25 per cent on the otherwise tax free kings ransom which I will be taking out of this country on retirement.

<{POST_SNAPBACK}>

I think you'll find that most people leaving the country on retirement will simply not pay the tax.

[JohnnyLaw]

There's no way politically or practically something like this could be introduced in the short term.

What I can seriously envisage happening though is the introduction of something that shifts all or some of the stamp duty burden from the buyer to the seller. This would clearly have political appeal, New Labour helping the FTB and so on.

Once established the applicable rate of tax could then be incrementally increased until parity with CGT is achieved by stealth.

Just speculation.

[MarkG]

Surely this would just as likely (more IMO) send prices UP rather than DOWN?

So you're saying that people would pay _more_ to buy a house, knowing that they'll be hit for 40% of any price inflation when they sell?

There are always people who need to sell a house... and they'll have to price those houses to sell.

[Bluelady]

this is why we have the crisis in the first place.

i dont blame TB and GB for creating the bubble. i blame then for doing nothing about it. its was the media combined with public mass greed and lack of foresight that made this happen.

a cap gains tax on 2nd properties at 40% should be established. it is a profit from investing and should be subject to tax accordingly.

<{POST_SNAPBACK}>

It has and it is.

[No6]

Boateng didn't answer the question (twice).  Why?

People remember that the Government promised there would be no tax increases under them, but in fact there have been 66 tax rises. Will the Chief Secretary take this second opportunity to reassure home owners that capital gains tax will not be levied on their homes, and that no one in the Treasury is looking at that?

Mr. Boateng: What people know is that the Tories consistently failed to keep their promises on tax. They know that it was the Tories who raised value added tax on fuel, and gave this country double-digit inflation and interest rates and 3 million unemployed. There will be no return to the days when the Tories ruined the economy. If people compare and contrast their record on tax and growth with ours, this Government win hands down, every time.

<{POST_SNAPBACK}>

To be clear on this, New Labour's promise was not to increase income tax. Just like the Tories, for New Labour income tax is the Holy Grail of taxation, something mystical in the eyes of the voters and therefore not to be touched, unless it can be reduced. Of course, for both of them, every other tax is up for grabs. It was the Tories who specialised in raising stealth taxes between 1979-1997. New Labour are simply continuing this new method of taxation tradition.

The fact that for most people, all taxes are effectively a tax on income is overlooked by politicians for the purposes of political spin and the political propaganda game that both New Labour and Old Tory play. They are both as bad as each other. Whoever wins the May election will find new ways of raising taxation outside of "income" tax, but people will still vote for them.

Listening to Letwin on the radio today, the Tories have simply latched on to a way to get the important home owning vote on their side, by posing the possibility of this CGT tax threat as another stealth tax. And of course, the estimated tax revenue is based on bubble prices, which the Tories are clearly telling you, they support, just like New Labour.

[Tonyb69]

Why are people saying prices would increase?

You bought a house for £50K, sold for £150K, so pay 40% on the £100k profit. Eg £40K CGT.

If you bought for £50K, MEW'd to £100K, sold for £150K, then you've blown all your profit, bar £10K. You only pay on profit not on the full sale price!!!!

It would stop people MEW'ing and spending paper profits, it would also stop crazy price increases.

Great idea, shame it won't happen.

[zzg113]

Why are people saying prices would increase?

You bought a house for £50K, sold for £150K, so pay 40% on the £100k profit. Eg £40K CGT.

If you bought for £50K, MEW'd to £100K, sold for £150K, then you've blown all your profit, bar £10K. You only pay on profit not on the full sale price!!!!

I doubt it would work like that. With all other assets the IR subtract the base price from the sale price (ie what you purchased it for) and that is the taxable gain.

CGT on PPR's would increase prices because less people would want to sell=less supply=higher prices.

[MarkG]

It's also worth noting that capital gains tax reduces over time: not by huge amounts, but by enough that people who'd owned a house for ten years would pay a lot less than 40% tax on their profits (I think it's more like 20-25% at that time). So it would be far more of a discouragement to speculators than long-term house owners.