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House Price Crash Forum

Profits Made On Your Home Are Tax-free


Mr Yogi
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It should be made illegal to secure debt against property.

That would get land prices down to a thousand pounds an acre, instead of £2 million.

Brilliant idea!

Then the whole Country would end up being owned by a few hugely wealthy individuals who would be able to weild an insane amount of power.

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I'd prefer to start with reducing the main 20% tax rate or upping personal allowances. Low earners actually pay a higher total % tax than high earners. Here's why:

Once you pass the 40% tax threshold, you're only paying 1% NI. So effectively we've got two tax rates - 31% and 41%. Low earners then spend proportionally more on purchases attracting VAT, and are less likely to employ tax accountants to reduce their tax. So they end up paying more % tax in the end, which is scandalous IMHO.

Reducing tax at the bottom would also reduce the perverse incentives of staying on benefits.

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I'd prefer to start with reducing the main 20% tax rate or upping personal allowances. Low earners actually pay a higher total % tax than high earners. Here's why:

Once you pass the 40% tax threshold, you're only paying 1% NI. So effectively we've got two tax rates - 31% and 41%. Low earners then spend proportionally more on purchases attracting VAT, and are less likely to employ tax accountants to reduce their tax. So they end up paying more % tax in the end, which is scandalous IMHO.

Reducing tax at the bottom would also reduce the perverse incentives of staying on benefits.

If I live in a house worth x and it goes up to 1.5x I have not made any money, as it would cost me 1.5 x to move to a similar house.

So why should I have to pay more money ?

The best way to stop house price inflation - don't pay people to come to this country. I know loads of immigrants who get free housing - they would not live here if they had to pay.

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Isn't improving the housing stock a good thing too?

Let's change "what if we did" to "what if we didn't"

But that is only half the equation.

Tax has to be raised from somewhere. Why should housing be uniquely favoured? What for instance would be the consequence of scrapping CGT to corporate investment?

Since 6 April 2008, all taper relief and indexation relife has been removed from all chargeable gains on shares. CGT is now a flat 18%. This means no matter how long you hold shares, you will lose 18% of your chargeable gains to the government. That undoubtedly makes shre investment less attractive, taxwise, compared with property. Undoubtedly this will deter investors from putting money in shares. This will depress equity valuations. This has many consequnces.

1 ) it will discourage companies from raising money through equity issue, as existing shreholders will have to give up more capital to raise less equity. w/o recourse to debt, investment will be reduced and businesses will undoubtedly grow more slowly, reducing employment opportunities and recepts to teh exchequer, forcing other taxes higher, thereby reducing the disposble incomes of familes (which might otherwise be used to inprove the housing stock, for instance).

2 ) lower stock market multiples resulting from 1 will ultimately mean seed capital will be looking at lower exit valuations. So even with business start up incentives, business angels will be demanding larger slices of equity at the seed stage. This will dishearten and discourage entrepreneurs. This will mean new ideas and new businesses, the future lifeblood of corporate Britain, are reduced, reducing employment opportunites and exchequer receipts, forcing higher personal taxation, reducing disposable incomes and spending in general and, as a for instance, on hom eimprovements.

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So it would reduce demand and therefore act as a brake on future house price inflation. Isn't that a good thing?

It would also take the shine off the 'business' of buying a run-down house , tarting it up while supposedly living there (but not really) and flipping it at a tax-free profit.

Isn't that a good thing too?

HMRC is aware of tens of thousands of owner-occupiers who buy, improve and sell their main residence for a profit, whilst claiming Principal Private Residence relief on the gain. The problem for HMRC is proving that the owner is carrying on a trade and so taxing the gain to income tax. Some prolific flippers have been had the PPR relief denied but it is rare; the majority can get away with it.

But at the end of the day, even the main residence is subject to inheritance tax at 40%, and not simply on the gain at 18%, but on the whole bl**dy lot, subject to the nil rate band of course.

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The reason is that it would awaken the masses to the way inflation works as a tax. If you bought for 100k and wish to move to a similar one that now costs 200k you would pay 40k in CGT. Thus although you have received no increase in quality you would have to pay a large sum out preventing the move. If they did this the average man would demand an end to inflation and the banks and government do not want that.

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But that is only half the equation.

Tax has to be raised from somewhere. Why should housing be uniquely favoured?

Firstly, I am in favour, in principle, of paying tax as long as the infrastructure into which it's invested is sensible. Even the most committed socialist (I am not one of those!) wouldn't dare to suggest that taxes today in the UK are going somewhere sensible. Would they??

As far as I'm concerned, we have a problem with politicians and commentators who are not aware of the virtues of keeping things simple. They have been slaving away for decades aided by beardy civil servants who abhor simplicity. The result is a hideous tar ball of legislation, taxes, interference and self serving by government. In this situation, I suggest we should be, in general, putting a ban on increasing 'fairness' by adding taxes. There is always a choice of which way to turn the wheel - towards greater or lesser taxation. Given the advancing tar ball, it seems obvious to me which way to turn. You can make things more fair by reducing taxation too.

If we allow our politicians to have a good old meddle with taxes on equity in houses, you will generate suitcases of cash changing hands under the table as it does in France and Spain - or some other unintended consequence. The stupidity of the stamp duty bands distorts the market as it is.

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The best way to stop house price inflation - don't pay people to come to this country. I know loads of immigrants who get free housing - they would not live here if they had to pay.

House price inflation tends to correct itself, as we are now witnessing.

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The Government get a lot of stamp duty.

They also get VAT from EAs, solicitors, etc

Once a house is purchased, they get tax on all the materials bought to tart it up, paint a wall, buy new furniture/curtains, etc.

The Govt get enough from each house sale already.

They also get all that fuel duty as people drive around looking at houses :)

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Don't get caught in the trap of "My house has gone up in value by £100 K so therefore I just made £100 K by doing nothing". No you haven't. You have an asset that has increased in value but until it is sold and you move into cardboard city you have'nt made a bean. My parents tend to do this with sharess, "we made lost x today on our shares". Not until they are sold. In the mean time they are as worthless as used bits of toilet paper (dividends excepted of course).

I think these people are virtualising their wealth based on current exchange values for the purpose of measurement or discussion (or indulging in a bit of smug gloating). Its not a mistake to constantly measure your possessions in terms of theoretical exchanges, asking such questions is a good thing, provided their perceived potential exchange value, and any actions they may derive from it, is in line with the actual current demand.

I think if you make that point, valid as it is, to the people saying such things their response would rightly be that you were stating the obvious.

Or, are you saying their feeling of wealth is vulnerable to being false since the value of their money in terms of other things may have fallen? Thats a mistake I've certainly observed.

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