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Timmy Manson

House Price Inflation And Income Tax.....

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The other evening I was mulling the idea that mortgages are paid from post tax income......and that the larger the mortgage, the greater the locked in salary requirement an individual has, and the greater that locked in salary requirement the more income tax a person has to pay...or they face loosing there house.

Actually this was prompted by talking to a couple of friends at a wedding, they're both professionals 'doing well' but have just had a kid, the chap was telling me that his wife would love to give up work/ work part time, but they both have to keep working full time to pay the mortgage, they are locked in. And GB just keeps harvesting the tax....... so given that house prices have doubled over the past 4 years here's an example....

Borrow £100k over 20 years repaying £750 pcm.....

Loan £100k, interest £80k, pre tax earnings required £278k....tax deducted £97k

---------------------------------------------------------------------------------------------

Borrow £200k over 25 years repaying £1250 pcm.....

Loan £200k, interest £212k, pre tax earnings required £686k....tax deducted £274k

I think that my assumption of a longer loan period out to 25 years is fair.

So in terms of locked in tax paid to HM Treasury a young person buying today will be comitting to pay £274,000 in income tax during the process of purchasing a house compared to £97,000 just 4 years ago.

No wonder the UK government is doing absolutely nothing to tackle the housing crises. The banks, the government and those nearing retirement age ( who at the next election will account for 60-80% of the votes all have a vested interest in house price inflation.

Well just some thoughts and some fag packet calculations.

Edited by Timmy Manson

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Consumption is based on either 'disposable income' or debt.

There is a widespread perception that rising house prices are inevitably good for the economy.

But...just look at how much less actual disposable income home owners that have bought since 1995 now have to spend. And unlike consumer goods the rising costs of property have not been built into the inflation rate and therefore have not helped raise wages to help in paying the mortgages.

Up to now this has been counterbalanced by a combination of MEW, debt and the 'feelgood' factor.

What happens next? MEW, debt and feelgood drivers of consumption have come to an end.

Tough times ahead in this unbalanced and toppling over economy.

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The other evening I was mulling the idea that mortgages are paid from post tax income......and that the larger the mortgage, the greater the locked in salary requirement an individual has, and the greater that locked in salary requirement the more income tax a person has to pay...or they face loosing there house.

Actually this was prompted by talking to a couple of friends at a wedding, they're both professionals 'doing well' but have just had a kid, the chap was telling me that his wife would love to give up work/ work part time, but they both have to keep working full time to pay the mortgage, they are locked in. And GB just keeps harvesting the tax....... so given that house prices have doubled over the past 4 years here's an example....

Borrow £100k over 20 years repaying £750 pcm.....

Loan £100k, interest £80k, pre tax earnings required £278k....tax deducted £97k

---------------------------------------------------------------------------------------------

Borrow £200k over 25 years repaying £1250 pcm.....

Loan £200k, interest £212k, pre tax earnings required £686k....tax deducted £274k

I think that my assumption of a longer loan period out to 25 years is fair.

So in terms of locked in tax paid to HM Treasury a young person buying today will be comitting to pay £274,000 in income tax during the process of purchasing a house compared to £97,000 just 4 years ago.

No wonder the UK government is doing absolutely nothing to tackle the housing crises. The banks, the government and those nearing retirement age ( who at the next election will account for 60-80% of the votes all have a vested interest in house price inflation.

Well just some thoughts and some fag packet calculations.

Your argument is completely illogical. If a job exists, someone will do it, get paid and pay income tax.

It makes no difference to the chancellor whether the tax is paid by a wife who would rather give up work or anyone else.

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I can't believe virtually every respondent to this thread has missed Timmy M's point (but they have). Having astronomical house prices suits the government down to the ground, as it creates legions of wage and debt slaves who have to keep their jobs to keep their homes, and the higher the house price the longer they have to work/ the higher-paid job they have to have in order to pay off the mortgage, hence the more tax they will pay; so the higher the house price that people have to pay the more tax revenue the government will receive. Timmy M's argument is not in the least illogical.

Edited by IPOD

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I can't believe virtually every respondent to this thread has missed Timmy M's point (but they have). Having astronomical house prices suits the government down to the ground, as it creates legions of wage and debt slaves who have to keep their jobs to keep their homes, and the higher the house price the longer they have to work/ the higher-paid job they have to have in order to pay off the mortgage, hence the more tax they will pay; so the higher the house price that people have to pay the more tax revenue the government will receive. Timmy M's argument is not in the least illogical.

Of course it is illogical. Jobs don't just appear because people need the wages!!

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I can't believe virtually every respondent to this thread has missed Timmy M's point (but they have). Having astronomical house prices suits the government down to the ground, as it creates legions of wage and debt slaves who have to keep their jobs to keep their homes, and the higher the house price the longer they have to work/ the higher-paid job they have to have in order to pay off the mortgage, hence the more tax they will pay; so the higher the house price that people have to pay the more tax revenue the government will receive. Timmy M's argument is not in the least illogical.

What happens to people who take retirees jobs then?

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Wouldn't it be better for the Treasury's coffers if everyone had a small easily affordable mortgage?

That would leave more disposable income to be spent on (vatable) consumer goods.

Well, yes but that's offset by the amount of GGT they suck out of the housing pyramid. As well as the extra corporation tax they get on the additional estate agents' fees in a high-priced housing environment.

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Of course it is illogical. Jobs don't just appear because people need the wages!!

Tsssk :rolleyes:

Okay I'm am not making any points about the labour market but about the choices people can/cannot take. In the past one partner would often go part time when a family was started....or the main/ both earners would decide to work in less demanding jobs as they got slightly older/ had family committments. Both would be detrimental to the UK govmt tax take.

My point is that when people take on a large mortgage due to hpi they are effectively issuing a bond based on their future earnings. They then HAVE to earn that money, they have NO CHOICE in the matter. And because they can only pay the mortgage using post tax income this means that they have no choice to carry on worknig as effective tax slaves whether they like it or not.

In the past people might have paid off their mortgage after 10 years, and decided to down shift to a less stressful job or go part time, most young people entering into huge mortgages will not have this choice. And HM Treasury and the banks will both stand to benefit greatly.

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Well, yes but that's offset by the amount of GGT they suck out of the housing pyramid. As well as the extra corporation tax they get on the additional estate agents' fees in a high-priced housing environment.

But is it?

Pay £250k for a house and the treasury gets £7500 (3% stamp duty) and say £1500 (30% corporation tax if the agent declares all of their 2% commission as taxable profit, which is unlikely).

So the treasury receives a maximum of £9000 in tax.

Spend £250k on standard rated consumer goods and the treasury receives £37234 in VAT.

Admittedly an overly simplistic example, and yes, I'm not taking into account the stamp duty etc paid by others in a house buying/selling chain, or the tax on the profits of their agents or the paye paid by the agents staff, but then again I'm also not taking into account the tax on the profits of the retailer where the £250k has been spent, or the paye paid by their staff, or the fuel duty paid by the transport firm who delivered the consumer goods.............etc etc.

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But is it?

Pay £250k for a house and the treasury gets £7500 (3% stamp duty) and say £1500 (30% corporation tax if the agent declares all of their 2% commission as taxable profit, which is unlikely).

So the treasury receives a maximum of £9000 in tax.

Spend £250k on standard rated consumer goods and the treasury receives £37234 in VAT.

Admittedly an overly simplistic example, and yes, I'm not taking into account the stamp duty etc paid by others in a house buying/selling chain, or the tax on the profits of their agents or the paye paid by the agents staff, but then again I'm also not taking into account the tax on the profits of the retailer where the £250k has been spent, or the paye paid by their staff, or the fuel duty paid by the transport firm who delivered the consumer goods.............etc etc.

But you have the choice of whether to spend that £250k on consumer goods, my point is CHOICE one you have committed to pay £450k to cover a 25 year mortgage of a £200k house YOU HAVE TO PAY IT BACK + INTEREST and the government tax you on the income you need to earn to pay it back, you are then TRAPPED.

Sorry for the caps but you don't seem to be understanding my point.

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Tsssk  :rolleyes:

In the past people might have paid off their mortgage after 10 years, and decided to down shift to a less stressful job or go part time, most young people entering into huge mortgages will not have this choice. And HM Treasury and the banks will both stand to benefit greatly.

I don't know anyone who paid their mortgage off in 10 years.

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But you have the choice of whether to spend that £250k on consumer goods, my point is CHOICE one you have committed to pay £450k to cover a 25 year mortgage of a £200k house YOU HAVE TO PAY IT BACK + INTEREST and the government tax you on the income you need to earn to pay it back, you are then TRAPPED.

Sorry for the caps but you don't seem to be understanding my point.

If you have large negative equity, you are trapped, at least for a while. But otherwise, what's to stop anyone just selling up? You don't have to stay in a particular property for 25 years just because you have a 25 year mortgage.

There's a difference between not understanding your point, and understanding it but disagreeing with it ;)

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In the past people might have paid off their mortgage after 10 years, and decided to down shift to a less stressful job or go part time, most young people entering into huge mortgages will not have this choice. And HM Treasury and the banks will both stand to benefit greatly.

Sorry to repeat myself but you're completely missing my point. I know people have to work nowadays whereas before they might not have had to but.......

If they didn't do the jobs because their mortgages were less, what would happen? The vacancy would be filled by someone else (so exactly the same tax take) or remain unfilled. And what happens if vacancies are unfilled? Wages would rise (more tax, more inflation).

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Sorry to repeat myself but you're completely missing my point. I know people have to work nowadays whereas before they might not have had to but.......

If they didn't do the jobs because their mortgages were less, what would happen? The vacancy would be filled by someone else (so exactly the same tax take) or remain unfilled. And what happens if vacancies are unfilled? Wages would rise (more tax, more inflation).

There are not a finite fixed number of jobs in the UK economy.

There is not a finite amount of capital in the UK economy.

Even a socialist should realise that the economy is not completely state planned yet?

It is not the case that if one job is not done it will automatically pass to another UK employee. They are not centrally allocated by some beurocratic mandarin.

The UK economy needs to keep growing because the tax burden keeps growing because goverment spending keeps growing.... and someone has to pay for it. In order to compel working people to create more capital, more money, they are encouraged to enter a postion of debt from which they have no choice but to work in order to pay the debt off and in doing so pay taxes.

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There are not a finite fixed number of jobs in the UK economy.

There is not a finite amount of capital in the UK economy.

Even a socialist should realise that the economy is not completely state planned yet?

It is not the case that if one job is not done it will automatically pass to another UK employee. They are not centrally allocated by some beurocratic mandarin.

The UK economy needs to keep growing because the tax burden keeps growing because goverment spending keeps growing.... and someone has to pay for it. In order to compel working people to create more capital, more money, they are encouraged to enter a postion of debt from which they have no choice but to work in order to pay the debt off and in doing so pay taxes.

Who said there was? Talk about putting words in my mouth - I didn't imply there was a "bureaucratic" job allocation, simply that the amount of jobs available is not determined by people's need for money. If it were, there would be no poverty in the world - jobs would simply appear to fill people's need for cash.

Edited by Casual Observer

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  • 302 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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