Wednesday, May 19, 2010
More one-sided economics from the Home-Owner-Ists
Metro: Nasty double whammy for investors
"Higher gains tax will throttle the private rental market, making it far less worthwhile for investors to let out property (1), as the Institute of Economic Affairs points out (2). It will cut the supply of homes for sale as investors will be loath to realise gains and hence pay tax (2). It will trash the investments of individuals (3) and force many to postpone their retirements.(4)" My response to that is quite lengthy so I have posted a comment rather than try and squeeze it in here.
Posted by mark wadsworth @ 10:53 AM (1320 views) Add Comment
3 Comments
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1. mark wadsworth said...
(1) Nope. If you own a property that you are letting out, putting CGT rates back to where they were two years ago and had been for decades makes it MORE worthwhile to rent out a property rather than sell it. And whatever the tax rates on anything are, it is always more worthwhile letting it out than leaving it empty (unless tax rate > 100%, which is clearly not the case).
(2) Please ignore the first (2). I was going to say something sarcastic about IEA but they aren't worth it.
(2) If people are 'loath' to sell an investment property, then this might well reduce the number of homes available for sale, but will increase the number of homes that are available to let, without making keeping them and letting them out less profitable. So he is wrong on both counts and has contradicted himself anyway.
(3) Trash the investments? Nope. The long run return on investments always levels out. CGT does not affect rental income, and might increase selling prices (less supply; plus people might hold out for a higher price to compensate for CGT). So yet another contradiction. In any event, if you bought a house more than ten years ago, it has doubeld in value - far exceeding the expectations of any rational investor - and surely it's better to have a 100% profit minus 40% tax than it is to have a smaller or no profit, on which you would have expected to pay, er, 40% CGT?
On a personal note, I did pay 40% CGT on the flats I sold, it was my call to sell them and I took the tax into account beforehand.
(4) Woah!! Yet another contradiction. Some people have accumulated a number of properties to rent, and they want to live off the rental income in retirement. There is no reason why this would affect retirement plans. So yet another lie/contradiction.
2. sovietuk said...
"and force many to postpone their retirements"
Retirement - soon to be defined as the time it takes you to fall from your work desk onto the floor - dead.
3. icarus said...
As MW says. Also - "Asset prices are the net present value of their expected future cash flows". No. We're in an era of bubbles, which can be defined as the premia paid for assets over and above the NPV of the expected future cash flows of those assets. One way to reduce these premia is to increase interest rates. The problem he points to in his first para - that a saver with £10k is losing £500 pa because of inflation - would be solved if that saver received 5% interest. And he talks about discouraging debt in his penultimate para. So why no suggestion in the piece that IRs be increased? (No prizes for the right answer.)