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.

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.

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................

Also on thisismoney

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

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.

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.

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.

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.

Oh,and STR....Yikes

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 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!

Front page of Mail and their website

All good stuff to add to the panic!

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

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.

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.

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.

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.

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

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.

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.

It has and it is.

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.

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.

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.

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.

If you wanted to introduce a tax on house sales wouldn't now be the perfect time to do it.

seller: "Yikes, I have to give the tax man 40% of the £100,000 I've made"
government: "Yes, but you'll still have made £60,000"
seller: "Well that does soften the blow"

It's political dynamite but might happen if it's implemented correctly:
1) Allow carrying forward of the CGT e.g. if you buy when you sell there is nothing to pay.
2) Tapered CGT relief so if you live in a house for 30 years you'll have no or very little CGT to pay.
3) Explain that allowing SIPPs to buy houses with tax free money means the tax will be paid later on the sale.

This means that the successful BTL and speculators are screwed, those who are not successful won't make any profits so don't need to pay any CGT anyway.

It seems unfair to me but it's like a sort of windfall tax. Those who've made millions will have a hefty tax bill. Best of all those who pay this tax are a small number (who historically vote tory anyway) and they have new money so they lack the contacts to fight against this legistration.

If it happens expect it post election, with maybe a hint about it in the budget.

Sorry ZZG,

I meant ,

Bought £50K, sold for £150K. CGT on profit £40K. IF you MEW'd £50K then:-

Sales £150K, less CGT £40K, less Mortgage £50K + £50K MEW, leaves you with £10K in the bank.

No, im saying that if everyone was suddenly told that they would have to pay 40% on the profit if they sell their house, far less people would want to sell! One thing though, if this tax was levied, there would be lots of panic selling to try and realise some profit before the tax starts

A house isn't like a share in a company: it's the place you live, not an entry in a computer database. If you want to move to a bigger house, you'll have to sell or rent it out. If you want to move to a different location, you'll have to sell or rent it out. And if you rent it out, you'll definitely be hit by capital gains tax when you sell (unless you're a crook).

Trouble is far to many people treat just like that, day-trading with property to make a quick buck. AND that should taxable

That already IS taxable though! People who buy and sell quickly like you describe are unlikely to do it with their main residence, therefore any profit on sale already attracts CGT.

Have to say still unsure in my own my how this would play. But would still favour price drops.

Given everyone is up to their nuts in debt and the multiples for new entrants are high; if the tax was applied then people would only be able to sell if the price of the next property fell significantly, potentially 40%.

The people who would significantly suffer in this scenario are:
- the people at the top of the pyramid
- those who have Mew'd themselves to the edge.
- those on the first rung, who have bought in the last 2 years and are mortgaged to the hilt

Once prices had fallen the annualised growth would have to stabilise to maintain rungs on the ladder smaller enough, and enable wages to keep pace with the drag of 40% tax on each transaction.

Once the market had stabilised stamp could be abolished and people would pay roughly the same amount for the transaction but with lower overall profit.
eg £150k house @ 2% growth for 3 years = £160
CG = £10k
CGT = £4k vs stamp of £2.5k

Government therefore achieves huge dividend from 7 years growth; stabilises the market long term; and gets political kudos for solving the housing crisis. And all it has to do is work out how to help the poor sods who bought in the last 2 years at max gearing. The speculators can hang without many tears from government or Joe public.

SOunds fantastic idea all round on reflection. Only snag is convincing the public that they'll actually be richer when you've spent the last 5 years parading around in the Emporers clothes. No wonder it was for after the election!

I wonder the effect this would have on babyboomers who have MEWed in a big way, thinking they wouldn't have to pay CGT when they downsize.

Completely stuffed by all accounts!

What did Merv say: House prices are conjecture; Debt is real.

Could feel a little sorry for them. Only blindly following mad Gordon's grand plan.

What a compete screw up. I hope he gets in to face the music.

If they put CGT on profits, I wonder if they will balance this by offer tax relief on negative equity (losses)?

It should be more than 40%. Say, 80% to discourage people from buying houses purely for speculation, oh, and while we are about it - on first homes as well as second. That should wake people up and put their money into more worthwile "investments", leaving housing for those who want to actually LIVE in them.

If you take the profit out of housing speculation, their prices will quickly fall to sensible levels and the whole country can concentrate on living instead of spending every waking moment pontificating, worrying about, and being slaves to property.


VP

Just heard it on local radio, apparently on the front page of one of the papers (the telegraph I think)

Still making up my mind on this one, though it has already occured to me that it's either higher income tax or cap gains tax on homes. And that every other capital gain that you make gets taxed at 40% so why should homes be any different?

From a moral standpoint I have always had a problem with the idea that profits on gambling and property ownership are tax free. But the income we make from hard work and productivity generating activities is heavily taxed.

I also think that inheritance tax is highly preferable to income tax, provided a suitable mechanism is put in place to protect small businesses from immediate crippleing tax bills ( say put the business into a trust and tax the ongoing profits at income, but suspend the inheritance tax until/unless the family sold the business ).

Another aspect to this is its one in the eye for BTL's on the fiddle. The type who buy a house with a PPR mortgage and then rent it out on the sly. My sister and bro in laws landlady does this and I'm sure many others do too.

Just a thought:

This type of tax would have a negative effect on labour mobility, and hence the efficiency of the economy.

People have much less stable jobs and careers than they used to, and are more likely to need to move around to follow jobs than in the past.

Taxing realised gains on houses would provide an incentive to remain in place, rather than being willing to relocate.

You wouldn't be able to sell up, rent for a while in a new location, then look to buy, as you would have to pay tax on your equity, unlike people moving straight from house to house.

If CGT was tapered to the length of residence in the property, this would give people an incentive to stay on longer than normal to reduce tax liability, or even become landlords, rather than selling when they would otherwise have wanted to move.

These effects could be quite serious and harmful, and I'm sure that someone in the treasury would have noticed them - reducing labour mobility is a very bad thing.

They could introduce this gradually - say 5% the first year, increasing by 5% a year until they reached 40%.

Its enough to make you want to stay in rented. What with stamp duty when you buy and Agents fees when you sell, its the easiest way of blowing 15k I can think of.

Biriani is right. There are other ways of limiting speculation that don't limit labour movement. BTL (which will no doubt be seen as one of the greatest cons ever once this HPC is in full-swing) will have to go.

To bring CGT into residential first homes will serve only one purpose.

It will ensure that the housing stock you see today is never sold and will remain within the family for generations.

If the Gov brought in CGT on homes I for one would get into the rental market quickly as it will be a growth business and the UK will be just like France and Germany dependent on Landlords for housing.

The idea that it will reduce prices has no foundation whatsoever, people will just be further pushed to keep what they have, if the change jobs and aereas then they will simply rent it out and buy another one.

Another daft policy from the people who gave us Gypsy Camps, a War Criminal as a prime minister and a Champagne Socialist Cabinet.

Can't help but feel that there is some truth to all this; According to tonight's news,Paul Boateng has now announced that after the General Election he will be leaving his Post as Chief Secretary to the Treasury and taking up a Post as the Secretary for South Africa.
I would regard Paul Boateng as one of the few Labour MP's with what could be described as a conscience, a decent man.
Maybe this is his chance to get out before the 'sh*t hits the fan' and the truth eventually comes out; rather than lose face and being branded a Liar.
Mr Boateng is unlike most of the other Members of the Cabinet,who have been taking lessons from Tony in the priciples of bending the truth to one's own advantage.

Just seems very much of a coincidence that this should happen now, the day after the story appeared in the Newspapers.

[quote=laurejon,Mar 14 2005, 10:26 AM]
To bring CGT into residential first homes will serve only one purpose.

It will ensure that the housing stock you see today is never sold and will remain within the family for generations.

If the Gov brought in CGT on homes I for one would get into the rental market quickly as it will be a growth business and the UK will be just like France and Germany dependent on Landlords for housing.

The idea that it will reduce prices has no foundation whatsoever, people will just be further pushed to keep what they have, if the change jobs and aereas then they will simply rent it out and buy another one.


In some cases I agree it will prevent some houses just staying in the family but only for the wealthy. Most people would want to use their equity or downsize. The other issue is inheritance tax. Surely better to sell pocket the 60% remaining rather than pay IHT, leave the house to the kids who then pay another 40% on the profit when they sell. All this assuming the kids want to live in the same house when increasingly families are spread around the country.

As for just keeping a house and buying another, that very much depends on cashflow. If every one did that you would soon have saturation of the rental market, pretty much as we have now, so I can't see the majority supporting that scenario.

Far more likely people will keep transacting and everyone takes a big price cut. The only people feeling the pain being speculators and landlords.

The one thing I can agree on is, yes this govenrment is ridiculous in almost all regards.

Boateng may be decent and have a conscience. I wouldn't really know.

In some regards he annoys me more than most politicians for the vehemence & sincerity with which he makes statements. All the more irritating because he's spent so much time defending the treasury under Boom Boom (Big Time Bust) Brown.

In that regard he has taken lessons of Blair and they both make me bloody well retch to listen to them.

Can't remember where i read this, but I'm sure if you buy and sell within 18 months it is not regarded as a main residence (even if you were living there) and you are liable to CGT

Maybe this has changed in recent years?

To get round CGT all you have to do is withdraw the equity.

Simple as that, withdraw 60% equity (What you would have been left with if you had liquidated the asset) and then you still have a property for the kids with 40% equity remaining. The kids do the same for their kids and so on.

The Inland Rev will be looking at the land registry between buying and selling and dates/ amount paid to amount sold. It will be irrelevent if you withdraw equity.

There would be no sale.

A property worth 350K take out 300K in equity, Inland Revenue are not involved.

Spend the 300K anyhow you like and offset the loan against the rental income.