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Changing The Tax System

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In this part of of Outer London there seems to be a diminishing supply of properties available to buy. A significant cause of this is the trend to to let out rather than sell. Indeed, unless a house achieves the overly, optimistically inflated price, the vendor seeks, then after a period on the market it is up for rental.

This added to the fact that a considerable percentage of property appears to be being bought by investors, who seem to be well resourced to undertake the sort of refurbishment work that most of the frankly dilapidated houses on Rightmove need, is pushing up prices ever higher.

In some other countries I am familiar with you pay additional taxes on second homes, and greater amount still on a third property. I don't suppose it will happen but I think it would be equitable if the tax system was used to correct the imbalance in wealth down to property ownership. Income tax is relatively high but it seems to me, other than that raised through stamp duty, is relatively small. It appears relatively easy to structure things to avoid tax on property. Indeed the figures I saw suggest many people do this by just failing to make the appropriate declarations. If we started to tax the accumulation of wealth from owning property would we see a brake on house price inflation?

I just viewed a property on Saturday and it occurred to me that the vendor ( who had another property) had probably just moved in there to alleviate any potential capital gains tax issue.

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It's interesting to note that these rental properties are much more liquid than owner occupier homes. I think we saw a little bit of that in 2009.

Indeed, if/when rates go up, owners with more than one house are likely to try to sell one instead of losing both. This could quickly change the supply and demand characteristics of the housing market.

Anecdotally, at the last house I had a viewing at (some 2 months back), there were a young couple also looking. Got talking to them and they already had a place out in Kent which they were going to rent. I asked why, their answer was that they both earn good money and didn't need the equity released to get another mortgage. Didn't ask anything else but it seems to be the current trend, to accumulate as much property as you can for your pension.

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I just think a sort of moral hazard has arisen from the way the Government is underpinning the market. As a potential I buyer I find it impossible to negotiate down inflated asking prices because: 1) there's plenty loons who'll pay whatever is asked - agents are stoking this hysteria with their open days and claims that it is time limited offer. 2) There's insufficient pressure on sellers, because the artificially low interest rates and advice to banks from on high to avoid foreclosure mean that this very little push to sell. They can just sit tight, market a property for sell/rental, and if it doesn't shift just rent it out to tread water. House on this street 2005 bought @475. 2010 on Market @745, didn't sell, and then rented. Back on this month at 875k or rental 2600pcm. Has had no work done on it . What a rip-off! Bet the house is on some dodgy Interest only liar loan and there is minimal proper pressure on the vendor to sell, so he'll sit on the place to some mug comes and pays the silly price asked.

My thought was that maybe if we started taxing ownership we might see people selling rather than hoarding, and asking less if inflated profits were going to be eaten up in taxes.

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I remember the old joke...come home to a real fire, buy a cottage in Wales.

For those that don't know, there was a spate of torching 2nd homes in Wales way back when.

I've no objection to those with money enjoying whatever that money can buy them but 2nd homes can cause problems. I'd go for a council tax of say £10k per year with a 'I live here' discount that gets it down to the regular level.

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