Profits On Property To Be Hit By New Tax

[RichM]

Profits on property to be hit by new tax, Times 2/12/2005

This has been a great week for bears

Gordon Brown will use his Pre-Budget Report to disclose ambitious targets for hundreds of thousands of homes to be built over the next decade, The Times has learnt.

As part of the Government’s response to the Kate Barker report on housing, the Chancellor will also be pressing ahead with proposals to tax landowners who sell their land after obtaining planning permission.

Mu ha ha ha ha

RichM at housepricecrash.co.uk, the leading site for people with at least half a brain, was ambivalent.

"The market will crash anyway. Brown's daft schemes won't amount to much as he'll only be PM for about six months, the loser".

Casually typing up yet another incisive report for the millions of hpc.co.uk readers, RichM could only chuckle to himself. "Still, he's managed to find something else to pay for all the five-a-day coordinators."

Edited December 2, 2005 by RichM

[RichM]

I can't wait till Monday. I wonder what bit of "good news" the VIs have up their sleave...

[how much...?? you must be joking]

..i heard this being discussed on radio 5 earlier...

..the figure of 20% tax on land sold for development was mentioned...

..and gordon wants to push ahead with increased house building 230k units per year up from 175k...

...so all in all.. a glut of development land being rushed to market before the tax is implemented and an increased supply of housing stock...

...you wait all year for a trigger.....

[BandWagon]

That's one of the reasons why "The Economist" was so spot on with their article "In Come The Waves"

http://www.economist.com/opinion/displayst...f0-790e56f5e270

This housing bubble won't burst because of one single event, it will be over many years of small events slowly eroding people's false sense of security and wealth.

I'm so glad I'm no longer a part in this madness.

Edited December 2, 2005 by BandWagon

[ThePiltdownMan]

Has there ever been a situation where the government has levied a tax and the result is that the price has gone down?

[Bedsprings]

Development Land Tax [which had a similar aim] was introduced in 1976, and abolished in 1985. Why not check out the impact if any on land prices in thoose years? I recall that by the time of its demise its teeth had been pretty much whittled away anyway, but initially it was pretty draconian.

Edited December 2, 2005 by Bedsprings

[Time to raise the rents.]

Another tax to further increase the value of existing property?

Lovely for my portfolio........

[London Landlady]

Oh no - shock horror.

We wicked house owners will have to suffer the tax - just like the tobacco companies - they don't pass their tax onto the customer do they?

Oh dear we are all doomed.

[FTBagain]

Has there ever been a situation where the government has levied a tax and the result is that the price has gone down?

Probably not, but the converse is also true, give tax breaks (or even grants as they do in Oz) and you drive the price up. Which suggests that any artifical distortion of a market leads to increased prices.

[Michael]

making housing affordable is a complicated task.....but certain things can be done straight away to help things along.....1..Tax regime/ tenancy laws altered to make property investment (#BTL) less attractive than other investments.....2.Planning regime relaxed but with the abovementioned tax on windfall gains to landowners applied to generate money for social housing....

[Realistbear]

Another tax to further increase the value of existing property?

Lovely for my portfolio........

Labour are showing their true colours now that the "economic miracle" has come to an end. Labour will have to increase taxes accross the board to pay for the spending and budget shortfalls that have resulted. North Sea Oil is no longer there to bail them out and consumer confidence is eroding (CBI report 22 year low due to plummetting high street sales). Increased taxation, businesses closing, falling sterling, record debt levels and so forth are hardly the climate for further house price inflation.

[Marina]

..i heard this being discussed on radio 5 earlier...

..the figure of 20% tax on land sold for development was mentioned...

..and gordon wants to push ahead with increased house building 230k units per year up from 175k...

...so all in all.. a glut of development land being rushed to market before the tax is implemented and an increased supply of housing stock...

...you wait all year for a trigger.....

Everyone seems to be minsunderstanding this - or is it me?

It proposes a windfall tax on landowners who gain planning permission on land for development. So no-one is going to be rushing to market - land with planning permission on will not be affected.

The big developer's landbanks generally already have planning permission - so they won't be developed.

It's a tax on the farmer who one minute has a field worth 100k and the next minute, because of planning permission to build being granted, has a field worth £1 million.

How will that affect the housing market? Will the farmer try to get 20% more for his land? Well, he'll get whatever a developer is willing to pay - i.e. the market value. Instead of retiring to the Caribbean he might have to settle for Spain.

Oh no - shock horror.

We wicked house owners will have to suffer the tax - just like the tobacco companies - they don't pass their tax onto the customer do they?

Oh dear we are all doomed.

Do you own land that you hope to get planning permission on? Because if you don't this won't affect you.

Are you under the illusion that housing is somehow immune from market forces? When companies are faced with higher taxes they can try to pass them on to their customers or absorb them by looking for efficiency gains.

Very few people these days can pass on increases to their customers. I know lots of industries where they are selling now at the same price they were 10 years ago.

It's one of the first things Brown has ever proposed I agree with. The only problem is - if you are going to control who can build what where by the government (as our planning system does) then it is iniquitous for one individual to gain massively when the arbitrary decision to give land planning permission is made. The tax should be at least 50% - or land should be taken into public ownership.

[Marina]

The wonderful 'I'm doing better than you' impression that people like London Landlady and our old friend Time to Raise the Rents give makes me smile.

The economy is disappearing into a black hole of debt. Unemployment is already rising and will continue to do so. Worst Christmas in 22 years apparently on the retail front. The government is between a rock and a hard place - 10 bn hole in public finances and it's getting bigger every day.

But people who have bought a few houses over the years think they are safe and secure. Retirement provided for - everything in the garden is rosy, even if the economy is poised on recession.

So Gordon is dreaming up more taxes - the new development windfall tax is the latest. What do you think is coming next.

If we don't get a draconian tax on profits from selling second (and third and fourth) homes I will be astonished. He's looking for money, he can't raise income tax - once it is abundantly clear the housing market has tanked and is no longer the engine of the economy - you might as well tax it. BTL profits will be next for another windfall tax.

I love anecdotal stuff. I went into a furniture shop near me recently - well it's a warehouse type place really. I asked the guy running the place if he was closing down - the place was only half full of stock. He said, 'no, I'm not closing down but we're not selling anything like as much as we used to so I have cut back on stock. I asked him if he thought there was a recession on. He said 'Definitely, I've been trading here for 35 years and I have never known it this bad.

Gordon has a million more mouths to feed now and pensions to pay. Who can he tax next?

Edited December 2, 2005 by Marina

[no accountant]

It's one of the first things Brown has ever proposed I agree with. The only problem is - if you are going to control who can build what where by the government (as our planning system does) then it is iniquitous for one individual to gain massively when the arbitrary decision to give land planning permission is made. The tax should be at least 50% - or land should be taken into public ownership.

I this this was the nub of the argument - you reward the local authority for giving planning permission, hence excelerating and streamlining the planning process for maximum tax revenue. Hence far more land available to build on.

[Clouseau]

Another tax to further increase the value of existing property?

Lovely for my portfolio........

Your concern for the plight of the losers in the property-owning game is as touching as ever, my friend - for all your propert 'empire', you exhibit little class..

[iLegallyBlonde]

Your concern for the plight of the losers in the property-owning game is as touching as ever, my friend - for all your propert 'empire', you exhibit little class..

You meet the same people on your way down as you trod on on the way up, never forget that.

[RichM]

Marina you're so true it hurts. You are BANG on the money. Well done, son.

If some "lord" or farmer who inherited shed loads of land, no doubt kept over from some dodgy "settlement act" or vestigial act of feudalism, can get to make millions overnight just by petitioning (i.e. wining and whoring) the local council bigwig then this country is totally evil.

Yes, I am a true-blue, neo-con, "Thatcher was a saint" Tory-boy, but come on gents, the unavailability of land is just plain medieval, and screws up this country in so many ways.

Eighty-per-cent more like. It doesn't matter anyway, the crash is still on

You meet the same people on your way down as you trod on on the way up, never forget that.

Or you bump into them at the auctions

Edited December 2, 2005 by RichM

[IPOD]

If some "lord" or farmer who inherited shed loads of land, no doubt kept over from some dodgy "settlement act" or act vestige of feudalism, can get to make millions overnight just by petitioning (wining and whoring) the local council bigwig then this country is totally evil.

Yes, I am a true-blue, neo-con, "Thatcher was a saint" Tory-boy

Whether you are to the right or the left of the political spectrum, I think we are all against corruption and cronyism in such a vital area of public life as housing.

Incidentally I know a planning officer through a friend of a friend who says he isn't corrupt, but enjoys multiple free holidays each year in a luxury villa in Portugal (Val de Lobo) courtesy of a certain local property developer.....make of that what you will.

[IP Newcomer]

I'm afraid after reading this thread I'm not clear on exactly what is going to be done. So please enlighten me, does it:

1) Go into the council's hands. Setting what is in effect a fee to reward local authorities for granting planning permission.

2) Go into the Treasury's hands. So just another tax, and a tax on development at that.

3) Both at once.

4) Not decided yet.

Edited December 2, 2005 by IP Newcomer

[IP Newcomer]

I know it doesn't mean anything but here are the Barker recommendations:

• Government should set out a goal for improved market affordability.
  
• Additional investment building-up to between £1.2 and £1.6 billion per annum will be required to deliver additional social housing to meet projected future needs.
  
• Introduction of a Planning-gain Supplement to capture some of the development gains that landowners benefit from, to ensure that local communities share in the value of development.
  
• Establishment of a Regional Planning Executive to provide public advice to the Regional Planning Body on the scale and distribution of housing required to meet the market affordability target.
  
• Introduction of flexibility at the local level through the allocation of additional land in Local Development Frameworks, with the release of this additional land triggered by market signals.
  
• Establishment of a Community Infrastructure Fund to help to unlock some of the barriers to development.
  
• Local authorities should be allowed to “keep” the council tax receipts from new housing developments for a period of time to provide incentives for growth and to meet transitional costs associated with development.
  

Now where, precisely does it say that Central Government should introduce a new non-earmarked tax?

I know that this does not mean that it will not be done - and Barker will be used as the figleaf.

[no accountant]

I know that this does not mean that it will not be done - and Barker will be used as the figleaf.

This is it. If the tax goes to local councils this it should result in more land made available - bearish news. If it goes to fill Gordon's Brown Hole then it will mean less development and therefore is bullish news.

[patprimer74]

[RichM at housepricecrash.co.uk, the leading site for people with at least half a brain, was ambivalent.

What does your psychiatrist say about your habit of referring to yourself in the third person?

p

[oracle]

Dear HPCers...

Please read this post carefully as it contains some very important information regarding why NuLab desires such a tax and why house prices are so unaffordable at present...

The so-called 'planning gain supplement' is potentially bad news for HPCers as it will force developers (the larger ones especially) to shelve future development projects...

Margins are already getting squeezed and an additional 20% tax will render many forthcoming residential projects unviable or too risky to embark upon. Furthermore, am I not correct in saying that the Tories have already stated that they would repeal the act should they ever regain power?

Far from causing a property crash, it could well have an inflationary impact upon property prices, as supply of new builds becomes severely restricted due to developers moth-balling land banks whilst awaiting a change in policy from the Tories.

"Ah, that's why they're gonna make the developers disclose their land holdings", I hear you say.

My response is that this would be unworkable as the complexities involved in evaluating land values for each and every local authority would be insurmountable. Another side-effect is that LAs will be encouraged to ensure that land changes ownership for the highest possible values thus exacerbating development costs even further.

One thing for sure, the developers will challenge the decision at every step and the whole matter may not be resolved for another 10 years if that were to be the case.

At this point it is worth bearing in mind that taxes such as the one being proposed have failed on several occasions previously i.e. 'the development gain tax' which as I highlighted above, failed due to it obstructing the very objectives it was intended to achieve.

In reality, it is the smaller landowner that shoulders the tax burden whilst the larger ones and speculators always manage to find a means of avoiding such taxes. In other words, these type of taxes have always proven to be poorly targeted and hence, end up being deemed as unfair.

Should this tax come into force once again then don't be surprised to find future output of new housing to decrease dramatically. Having said that, I am now firmly of the opinion that this outcome is exactly the one desired by the present government.

Afterall, can you think of a better way of bolstering up house prices than to simply reduce the supply of new construction to this degree? Worth remembering that the amount of land coming up for sale would also be severely reduced as a direct consequence of such a tax. It always has done so in the past btw.

FPDSavills recently stated that UK building land values have grown by 770% over the past 20 years which happens to be a much faster rate of growth than the rate at which the value of average UK housing has grown.

Here's their quote at the time...

The difference between actual land value growth and projected inflation is generally regarded as a measure of the gap between affordable housing and housing that is getting beyond the reach of ever increasing numbers of people.

Yes HPCers and FTBers especially, this is the main reason why you've been priced out of the market: inflation in land values. So why are Messrs Brown and Prescott championing a tax that would further fuel development costs?

Well, I would have thought that's blimin obvious by now...

To have improved affordability, Barker's proposals should have set out to reduce the affordability gap of (770% - 320% =) 380%, not the contrary.

Barker to me, is clearly in on the whole sordid housing debacle as engineered by the likes of Brown and Prescott. I'll make it absolutely clear to everyone living in the UK and beyond. We currently have the most corrupt government that this country has ever witnessed.

This housing bubble is very real and becoming ever more serious in relation to the future prospects of UK plc. The politicians that are now conspiring to further support the housing bubble have nothing but their own sinister aspirations in mind; of that, I'm certain...

it became pretty clear that she was one og gordons cronies when she left and mentioned that she thought reverting back to RPI was a good idea......funny that now housing is going down she would want to do that isn't it....much like stripping out the price GAINS on the way up.

the game is simple........work harder for less,or else.

..if you are an employee,then I would seriously consider asking your bos for an expense account instead of a pay rise this year......if you mention he has to pay NI contributions on any pay rise,wheras this way he won't he might be brought round.......just don't mention you will be billing ALL your maintainance/excise duty and servicing costs to expenses........that'll probably give your average joe something like a 4k gross pay rise,your boss won't get hit too hard and the taxman get's shedloads less.

[delboypass]

Oh no - shock horror.

We wicked house owners will have to suffer the tax - just like the tobacco companies - they don't pass their tax onto the customer do they?

Oh dear we are all doomed.

Landlady - your either stupid or dumb - ill let you chose.

Do you notice any difference between cigerettes and houses. one is classed as a luxury and one is classed as a necessity. I.e. People can only pay for houses a fraction of what they get paid. IE if 50% of your city earned 500 a week I doubt you could increase rent past their. But of course if you chose to indulge in luxury then they can charge you what they like. Anyway, ill let you carry on with your fickle life trying to draw life and money out of your tenants.

[London Landlady]

Landlady - your either stupid or dumb - ill let you chose.

Do you notice any difference between cigerettes and houses. one is classed as a luxury and one is classed as a necessity. I.e. People can only pay for houses a fraction of what they get paid. IE if 50% of your city earned 500 a week I doubt you could increase rent past their. But of course if you chose to indulge in luxury then they can charge you what they like. Anyway, ill let you carry on with your fickle life trying to draw life and money out of your tenants.

Did you mean You're?