Monday, Mar 15, 2010
Self interest is alive and well in Westminster
Guardian: Buy-to-let tax break plan attacked as further blow to first-time buyers
At some point in the distant future, the degree of self interest being applied to current legislation on property ownership will be seen as grossest and most peverse corruption of power in the history of Parliament and the Bank of England.
Posted by paul @ 07:42 AM (2319 views) Add Comment
37 Comments
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1. mark wadsworth said...
What bloody tax breaks?
On the whole, the tax that a BTLers pays is rather much higher than what an owner-occupier pays, because the owner-occupier pays precisely NOTHING (apart from council tax).
We can argue whether BTLers ought to pay more tax but more importantly owner-occupiers should be paying a LOT more tax.
2. it_is_going_with_a_bang said...
If BTL landlords operate within the law and provide a good service then they have done no wrong. Little tax changes like this make no real difference at all. The only real change would be to implement a fixed tax on income from property rental - not on profit.
But this is just a diversion from the truth, which is that a vast proportion of the population sees property price increases as a good thing.
How many MP's from any party do you hear saying property prices are too high and should go down? Not a lot. Phrases like affordability are used but as usual the language is nearly always toned down and public attention diverted.
Self interest is certainly alive and well in Westminster and lets not forget just about every media organization in this country.
3. The Baldman said...
Mark...the BTL has a huge tax break in that he can deduct all interest from income however highly leveraged the investment. In turn this leverage has inflated prices.
4. letthemfall said...
It's a perverse argument when rents have been falling: how do they conclude there is a shortage of houses to rent? There is actually an oversupply of lets and an undersupply of houses for sale. It would make more sense to increase the supply of social housing if there are so many people who cannot afford to rent or buy. It might make even more sense to adjust the tax system so that there is not an oversupply of places to rent or stacks of second homes standing empty all year.
5. righttoleech said...
Mark.........what tax do you propose owner occupiers should pay? Their marginal income tax rate on the rental value of their homes?
6. mark wadsworth said...
RTL, if we went back to Schedule A taxation of imputed rents, then yes, that is exactly what they would pay.
I fail to see why the tax generated from a property should be different depending whether it is rented from a landlord (who in turn rents the purchase price from the bank); owner-occupied with a mortgage or owner-occupied without a mortgage. That's taxation according to form-over-substance.
I wouldn't recommend imposing CGT on houses for the reasons explained (if anything, landlords should be exempted). Ditto SDLT. Or even Inheritance Tax.
But to round it all off, what we really need is a flat property value tax like in Northern Ireland. Which gives us a handy, non-distortionary type revenue stream and, if the rate were set correctly, an end to "capital gains" (it being the whole illusory capital gains that ruin things, not the fact that some people prefer renting to buying).
7. financial planner said...
What's the problem? BTL loans in 2009 down 75% on 2007. Nothing to do with govt intervention. It's the market!
8. luckyjim said...
It's a bit of a nothing story.
Personally I think stamp duty should be abolished altogether. It just makes the market even more disfunctional. It's a tax on downsizing. A tax on relocating.
It's depressing that none of the political parties has any radical ideas. Even a bonkers idea might trigger a debate.
9. taffee said...
too true...all the prties are effectively left wing....if you want right wing policies(normal tory party) then you are called a racist!
reality is there is little point letting more people in the country when unemployment is rising,cuts are needed in public services which are there to serve the private sector,interest rates need to rise and businesses which make no money should fail
its basic economics
10. letthemfall said...
Radical ideas are not generally liked by the electorate, hence none in party politics.
People are called racists if they discriminate on the grounds of race.
Public services are there to serve the public - ie everyone.
11. taffee said...
radical ideas are liked and needed by the public
people are called racist for not discriminating on the grounds of race all the time
public services are paid for by the private sector and should serve their needs
n.b...does that mean the black lawyers association and others are racist then?
12. luckyjim said...
ltf,
I think politicians assume (or have been told by their spin doctors) that radical ideas are unpopular.
It's a little bit like house sellers painting everything magnolia - don't put off potential buyers with your personal taste.
The tories are trying to sell 'hope' and 'change' without putting vorers off with the details of those changes.
13. taffee said...
david cameron hs missed a trick imo...gordon brown is the only politition whose policies I know..even though they are nuts.
barrack obma is the most unpopular president in his first year ever....he promised too much and cares too much about his popularity
he could have been blaming george bush for everything and cameron could have done the same to gordon brown
14. mander said...
Ha Ha Ha,
PricedOut should have argued that interest on debt is being deducted from the income of BTLs (mainly rents) but families do not have the interest on their mortgage debt deducted from their income at all whatever that may be salaries or self employment income.
Mr. Osborne please remember to make interest on debt undeductible as it happens in Canada, the country with the most stable housing market
15. letthemfall said...
If the electorate was so keen on radical ideas (taxation on housing for instance) political parties would introduce them. They will only adopt policies that they think will get them elected. To be more accurate, radical ideas are acceptable so long as they affect someone else.
The public sector services are paid for by the people, not some notional "private sector". They therefore serve the people - healthcare, education, law, etc. The main difference is that one has no choice but to pay for these via taxation, and everyone pays tax on income (the odd avoider excepted).
16. taffee said...
The private sector is the people....the electorate doesn't know what they need just what they want....being nice just lures them into a false sense of security...this is why mervin king said if they didn't do what they did,there would have been social unrest,however, there will be socil unrest anyway,its just put off.
Lets face facts...things are actually worse than 2007/2008/2009 because debt has been substantially increased and none of the problems solved.....we are in for pain beyond peoples current expectations
17. mark wadsworth said...
Mander: "PricedOut should have argued that interest on debt is being deducted from the income of BTLs (mainly rents)..."
Wrong. A BTLer's interest can ONLY be deducted from rental income. If that pushes the BTLer into a loss, then there is no deduction at all. But, ignoring the interest, the BTLer IS paying tax on the rental income and owner-occupiers are NOT paying tax on (notional) rental income.
18. mander said...
mw @ 16
If a but to let has an interest only mortgage let's say £ 600 per month and the rent he/she collects is still £ 600 what tax is being paid here?
19. taffee said...
most buy to letters I know have converted or are on interest only mortgages and re petrified of selling 'cos the solicitor has to inform the inland revenue...this has been the case for 2 years...perhaps another reason why they haven't sold along with mortgage rate bail out.
20. mark wadsworth said...
Mander, none, obviously.
But what is the tax collected if the occupant is an owner-occupier and not a tenant? Also 'none'.
So while BTL income and gains are, on the whole, taxed more lightly that business profits or employment income, they are taxed more heavily than the nearest comparative, which is owner-occuption.
21. The Baldman said...
Mark...you have totally lost me. The landlord is running a business and getting an excessive deduction for interest paid. Why should an owner pay any tax on occupation
22. letthemfall said...
taffee
The people comprise both sectors, and both are needed.
Agree with your second paragraph though. The electorate may not know what they want, but politicians have a difficult time convincing them. In any case, no politician can say that to the voters in a democracy, and frankly we wouldn't want them to. As Churchill (I think) said, democracy is the worst system of govt - except for all the rest.
23. taffee said...
none worse of course than US where the have the choice between two parties in a very strange system they call democracy...blue pill or red pill madam?...what about the others?....just pick a pill darling
24. vacuouspolitician said...
MW - If you had a home, would you be happy to be taxed on this? I'm fairly convinced that the majority of owners wouldn't and would never vote any party in that even considered this. What the government needs to do is come to a conclusion - is a house a home or is it an investment? At the moment it is treated as both...
As for BTL - most of this could be snuffed out very quickly by people doing more research - find out who is the landlord then boycott the get-rich-quick merchants eg Wilsons. If they can't get rents then their business plan is knackered.
25. mander said...
mw @ 20
I was trying to make point with regards to the deduction that is being allowed in the accountancy for interest on debt. And yes you are right about owner-occupied not being taxed but owner-occupied do not get the deduction from their income for the interest on their mortgage which I think it is unfair and in order to compensate interest on debt for Buy-To-Let should be made non deductible.
26. mark wadsworth said...
Baldman: "The landlord is running a business and getting an excessive deduction for interest paid" How on earth is it "excessive"?
Mander, it is a simple fact that BTLers pay more income tax on a property than owner-occupiers. Whether BTLers should pay MORE than they do at present is a separate debate, but my point is instead of blaming BTLers, it's the owner-occupiers who are taxed most lightly. And of course, under current rules, owner-occupiers don;t get a deduction for interest because they are not "running a business" and do not declare any income from the house.
Vacuous: "MW - If you had a home, would you be happy to be taxed on this?" It's called Schedule A taxation or Council Tax or Land Value Tax or whatever. And no, I don't object. Why is this any worse than being taxed on income or other expenditure?
I ask, again, in simple terms, why should the tax generated from a property be different between owner-occupied and tenanted? It's the same government providing the same services that benefit the same people.
27. The Baldman said...
Mark...they are allowed whatever level of gearing in purchasing the property they can obtain. In many countries there is cap on interest deductibility where the investment is over geared...perhaps a prudent 50 equity 50 debt would be a sensible ratio.
28. jack c said...
@mark wadsworth - you've got me a bit puzzled on this one - why should someone who is an owner occupier pay any more tax? the main residence isnt an income producing asset.
29. mark wadsworth said...
Jack C, in that case, why is it legal to charge rent? Does the house I rent produce income for me? Should I henceforth withhold my rent on that basis? Why is it legal to charge interest on a mortgage if the house generates no income? Why is it legal to have VAT? If I buy something liable to VAT, does it produce income for me? Why is it legal for anybody to ever charge for anything that does not produce income?
The point is, in terms of non-distortionary taxes, a tax on the consumption of housing is the least bad tax, even Adam Smith explained that over two centuries ago, in the same chapter in which he completely ruled out income tax as a sensible kind of tax.
30. ontheotherhand said...
I think the way to look at it is if I own a house, I could pay myself rent, and then use that rent to pay the bank interest. Or I could pay a landlord rent and they pay the bank. Either way, the government does not get tax.
31. vacuouspolitician said...
mw - Well yes you have a point, and yes it is no worse than being taxed on income etc. But it will take a massive change of attitude which I'm sorry to say is not likely to happen. Look at the outrage being expressed when Vince Cable suggested his mansion tax...even from his own party. Can you tell me one politician who will stick his/her neck out and upset all the 'powerful' VIs with this tax? After all even on this site (which tends to be pro-fairness) Vince Cable is branded a Fabian...
32. jack c said...
@mark wadsworth - I would be interested to have your response to this little case study
Married couple (mid 70's)
Owner occupiers of modest 3 bed semi ie their home (worked very hard through to age 65 - prudent, non smoker/drinker/gamblers and achieved owner occ status)
Income in retirement predominantly State retirement pensions topped up by approx £2k pa private pension
What extra Tax would you propose hitting them with and why? (or am I missing something here and you would scrap Council Tax etc...) - seems to me almost everything has a tax applied to it eg property insurance premiums now have insurance premium tax applied !
33. mark wadsworth said...
Jack C, obviously I'd start off by binning Council Tax, TV licence fee, insurance premium tax, stamp duty, Inheritance Tax, VAT on domestic fuel, capital gains tax and so on, and then replace them all with a flat annual property value tax of about 1% of property value (to be fiscally neutral).
Even if we only look at recurring taxes (not one offs like IHT or SDLT) then two-thirds of households would pay less.
There'd be a roll up option for pensioners.
Don't forget in Northern Ireland there's a flat rate property values tax of 0.78% (instead of Council Tax) - but it's capped at £400,000 value BUT they still have Inheritance Tax and Stamp Duty and so on, of course. This is in no way pie in the sky.
Then we can busk it from there.
34. jack c said...
@mark wadsworth - OK thanks for the explanation - your are now back on my list as a candidate for Chancellor - the last thing we need is more Taxes and a simplified regime would be warmly welcomed.
35. mark wadsworth said...
Jack C, ta, I thought I'd made it clear that it'd be a) a replacement tax and b) as much about simplification as anything else.
36. mander said...
Jack C,
Definatelly worth voting Mark Wadsworth for Chancellor. It is possible that a smaller tax sometimes would collect more revenue. But if politicians put taxes up and still collect less revenue what can people do about it? Also there is a 50% tax on income for good earners and only 18% capital gain tax for buy to let in the case they sell but they never do. So I can not see what tax if at all is getting collected from Buy To Let if interest on debt is fully deductible.
37. mark wadsworth said...
Mander: " So I can not see what tax if at all is getting collected from Buy To Let if interest on debt is fully deductible."
Because, as a matter of fact, take it from somebody who has spent twenty years grinding out tax returns and has been a buy-to-let landlord himself (i.e. me), on most properties, the rent more than covers the interest and some income tax is due.
The recent entrants to BTL are making losses, so what? They are subsidising the rents of tenants and/or shielding them from making capital losses, what's not to like about that?