Monday, Sep 21, 2009

Lib Dem idea alreading meeting with resistance

Mortgagestrategy: Lib Dem tax would slash property values, claims CEBR

The Centre for Economics and Business Research argues that the Liberal Democrats' plans to tax homes worth over £1m would actually end up forcing property values down. Vince Cable, treasury spokesman for the Liberal Democrats, is set to unveil his plans for a property tax on the wealthy later today at the party’s annual conference in Bournemouth. The charge would be applied at 0.5% for properties with a value over £1m and the party has calculated that £1.25bn could be raised via the tax. Douglas McWilliams, chief executive of the CEBR, says: “What they have failed to appreciate is that such a tax would have a major effect on house prices...........

Posted by jack c @ 03:24 PM (2062 views)
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1. The Baldman said...

sounds like a good idea then!!!

Monday, September 21, 2009 03:40PM Report Comment

2. mystie010 said...

Well that's a good thing isn't it house prices coming down. Why do people so want houses to be so pricey? Is it just so they can say look at me I've got one and you haven't??

Monday, September 21, 2009 03:47PM Report Comment

3. powerofnow said...

.... making the cost of accommodation more affordable.... issa good thing no?

Monday, September 21, 2009 03:59PM Report Comment

4. mark wadsworth said...

The whole home-owner's party counter-attack is infuriating (although only to be expected).

Of course it will depress house prices slightly, it's just like a higher interest rate. People with large mortgages ought to have factored in increases in interest rates of a couple of per cent, so should be able to afford it 0.5% (if not then they deserve what they get) and if people with large mortgages can afford it, then surely people with small or no mortgages can afford it as well? Sure, some of those are pensioners, who are sitting on a hitherto tax free gain of hundreds of thousands of pounds. If they have to pay an average of £500 per £100,000 of latent gain every year until they die (assume another fifteen years) that's still only an overall tax rate of < 7.5%, i.e. a quarter as much as PAYE/NIC.

Monday, September 21, 2009 04:00PM Report Comment

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6. letthemfall said...

Whether or not the rich leave is a matter of conjecture. Some may - the old rock star tax haven thing - but that should not stop this country striving for an equitable tax system. Not everyone wants to or can live in one of these isolated places. And implicit in your assumption is another, namely that the rich generate the wealth, which is not necessarily true. I cite the banks - again. Incentives are fine, but let's have them for the low paid as well as the wealthy.

Monday, September 21, 2009 04:21PM Report Comment

7. growler said...

The problem the Liberals have is a "new and different story for Britain" rather than the right story. Clegg is right to say we need savage cuts - and found out that this didn't put enough water between him and the Conservatives. Since then the party elite has reminded him the voters they are gunning for are Labour - possibly ultimately a Lib/Lab pact.

Cable wants to try and depress property prices - but the right way is to tax property gains for FIRST houses. It's simple. CGT on all properties, first or not. Then perhaps think about taxing people based on the % LTV. The higher, the more tax.

Monday, September 21, 2009 04:24PM Report Comment

8. timmy t said...

Personally i'd rather they taxed 2nd homes (and 3rd, 4th etc.) where they are not a genuine requirement. Homes are for living in - Those not lived in are a waste which costs everyone by making housing unaffordable.

Monday, September 21, 2009 04:29PM Report Comment

9. Mark Wadsworth said...

Letthemfall: why would there be a net outflow of "wealthy" people? For every one who sells up and clears off, there'll be another one moving here to snap up the bargain mansions. Is there an outflow of people with mortgages every time interest rates go up by half a per cent?

Growler: "CGT on all properties, first or not." If you did that, people are even less likely to trade down, so that's a bad idea in practice.

Timmy T "Personally i'd rather they taxed 2nd homes (and 3rd, 4th etc.)" Why? There'd be far too many loopholes (husband nominates first home as main residence, wife nominates second home, for example). Secondly, where is the moral difference between somebody with a house worth £200k and a holiday flat worth £100k and somebody with a house worth £300k? Who assesses "genuine requirement"? Does a single pensioner really need to stay in a 3-bed semi?

Plus the half a per cent is laughably low. People in very small properties pay considerably more than 1% in council tax.

Monday, September 21, 2009 04:44PM Report Comment

10. drewster said...

I expected a backlash from the usual vested interests - but the CEBR? The speed of their response is surprising too. Who funds them? Are they just a right-wing lobby group?

Monday, September 21, 2009 04:50PM Report Comment

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12. growler said...

I'm no smelly sock... but I think it's pretty indefensible to not tax property capital gains for 1st homes as well.

People should be able to offset expenses, inflation, management - whatever else is legitimate. Any gain over and above reasonable makes the "homes are for living in" justification for not paying tax questionable.

Let's face it: everyone knows that buying houses, doing them up and selling them is a passtime for everyone because you know when you sell, you'll make a profit. TV is filled with "making a tidy profit" on the house viaq improvements.

If I buy a business, invest and make improvements then I have to pay tax. The argument "well, it's a job to keep me off the streets so why do I have to pay tax" doesn't wash with the taxman.

It's also pretty unique in Europe - and we wonder why the UK is pretty much the only place with such massive reliance on the house price market to fuel borrowing.

Monday, September 21, 2009 04:55PM Report Comment

13. debtfree said...

What if someone lives in a mortgage free house but is out of work and living off savings, should they pay tax just because someone says your house is worth x amount ?

Monday, September 21, 2009 05:01PM Report Comment

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15. growler said...

I think Cable has got his wires crossed here (apologies for this metaphor)

It's a policy floated to see what the country thinks. As debtfree says, if you've grafted to get rid of the mortgage - why then be taxed? It's also a kind of retrospective tax. Would people have bought a house knowing they'd be taxed more for it in later life - when they are pensioners? People might find that living in a house for a long period of time (or their whole life) taxes them into tax through no fault of their own.

That's why I think the CGT way is the easiest way - and is in line with everywhere else in Europe.

But I get the hint that not too many commentators on here are too keen on Growlers thoughts ;-)

Monday, September 21, 2009 05:10PM Report Comment

16. charlie brooker said...

growler - the point you raise about UK homes being uniquely free of capital gains tax is a very important one (Europe anyway).

If you've got more information - even if its just anecdotes can you start a thread in the main forum?



Monday, September 21, 2009 05:12PM Report Comment

17. Theemperorhasnoclothes said...

debtfree - arguably yes they should be taxed. There is limited land and property resource, and by owning too much land you are contributing to the lack of affordable accommodation problem. Unless you believe we should loosen planning regulations, we need incentives to stop people hogging land and housing resources.

Monday, September 21, 2009 05:12PM Report Comment

18. doom&gloom said...

Charging CGT on first homes is unfair and unworkable. If you tax the gains, then presumably sellers should receive a credit if property prices fall between buying and selling? Could be expensive for HMRC for a few years...

Monday, September 21, 2009 05:16PM Report Comment

19. growler said...

@14; CB


Plenty of thoughts here - I have a large close family in Germany and know plenty of people in property in the UK.

But time for more fora(ums).... ?


Monday, September 21, 2009 05:17PM Report Comment

20. shipbuilder said...

The whole thing about the rich leaving and discouraging business is a red herring. In a proper LVT system, the property tax would replace income and corporation tax, so the 'productive' rich, those who contribute and earn, would have nothing to fear from it. Those who simply leech their wealth from a claim to own and therefore benefit from the scarcity of the land and resources that really belong to us all, should be the only objectors. Of course it doesn't matter if they leave, because they contribute relatively little and can't avoid paying the tax if they did.

Monday, September 21, 2009 05:17PM Report Comment

21. growler said...

@ D&G

Like any business you purchase or set up yourself. You pick up a balance sheet on acquisition that shows a value. If you lose money, you don't pay tax. If you make money after expenses, you pay tax. Just like we do here already for second homes or BTL people.

If the country introduced CGT on first homes, it would need to do a house price valuation - the same revaluation they would have to do for any of Cables ideas (let alone others)

Monday, September 21, 2009 05:22PM Report Comment

22. letthemfall said...

Some may think this way, but on the other hand many entrepreneurs say it's not about the money - disingenuous perhaps. But incentives apply to everyone. Take, for example, scientists, many employed in the public sector, who are paid peanuts. Remember the brain drain? Some do go abroad, though many stay here. With a progressive tax system, high earners would pay a fairer share (at present the tax burden is bourne disproportionately by the low paid) and those who don't like that may go, but there will be plenty to take their place. Anyway, I think we all agree that some/many rich people do not contribute that much to the economy. Some actually damage it. And since we've had that latest economic miracle (for which read the rich get richer), viz globalisation, our so-called wealth creators have enriched themselves at the expense of the majority. That is how we arrive at the situation where the median wage in the US has fallen over the last 30 years (I'd like to see figures for the UK) during a time of rampant economic growth. That demonstrates a desperate need for reform to the tax system.

Monday, September 21, 2009 05:50PM Report Comment

23. shipbuilder said...

I would question how much someone is really contributing to the country if they are willing to leave for tax reasons. Even so, as letthemfall says, there will be plenty willing to take their place.

Monday, September 21, 2009 05:55PM Report Comment

24. drewster said...

Let's get some perspective here. There are 250,000 houses in the UK worth £1m or more. If you own a house worth £1m, this new tax would mean paying £0 extra. If you own a house worth £1.5m, this new tax would be just £2,500 a year. That's less than an annual travelcard from Watford Junction to zone 1; and much less than the annual depreciation on a new Range Rover. How many people live in a £1.5m house yet can't afford £2,500 a year extra tax?

Pensioners can withdraw some equity from the house if they're really broke. A small draw-down of £50,000 would cover the tax for 20 years. Or of course they can move to a smaller house.

@shipbuilder - You're 100% right. We don't want rich people to use UK property as a tax-efficient place to park their cash. If they aren't generating enough money to pay even this small amount of tax, then the sooner they leave the sooner we can replace them with serious entrepreneurs.

Monday, September 21, 2009 06:06PM Report Comment

25. icarus said...

£1.25 billion won't make a lot of difference, You need to be thinking north of £10 billion (say 1% of GDP) to make any major tax change effective. The facts are (1) that any tax has downsides and inequities, (2) the government has to increase its tax take (no feasible and immediate cutting of expenditure will do the job) and (3) property taxes hurt the productive economy less than do corporation, income or consumption taxes. There's £3.5 trillion or more in property wealth in the country at today's prices and it would require a tax of just under 0.5% to raise the 1% of GDP. If you are to raise this amount the prime methods bandied around are CGT and maybe a flat rate levy of 0.5% to 1% on houses above a certain threshhold (maybe £ half a million or a million).

Monday, September 21, 2009 06:23PM Report Comment

26. drewster said...

The problem with CGT or stamp-duty increases is that people often wait to see if the tax rules are changed. If Labour introduced CGT on first houses now, the market would grind to a halt until the election.

Monday, September 21, 2009 06:59PM Report Comment

27. clockslinger said...

What evidence at all is there that the rich leave the country when taxed a tiny amount more (which is what we are discussing here)? So they take their kids out of school, forgo the (non means tested) child benefit payments they are getting and the occassional use of my (free in an emergency) NHS, and can do what they do (presuming they actually contribute anything at all) in that new location. Without a certain linguistic apptitude (and from my experience being rich is only marginally related to intelligence rather than birth or chance) they can go to a limited number of countries where English is the mother tounge. Ask yourself, how much trouble would YOU go to yourself to save a months council tax...which is about what this represents to many of these individuals or considerably less. Sorry, I don't mean to suggest for a moment that the rich are not magical and special human beings in whose absence life will cease.

Monday, September 21, 2009 07:23PM Report Comment

28. shipbuilder said...

24. clockslinger said...

"from my experience being rich is only marginally related to intelligence rather than birth or chance"

Have you read 'Outliers' by Malcolm Gladwell? I haven't, but it would appear to back that up.

Monday, September 21, 2009 07:50PM Report Comment

29. icarus said...

Where would people go to flee taxes? In France they tax all assets above a certain threshhold. In the US at state level median property taxes are generally between 0.5% and 1.5% p.a. of median property value.

Monday, September 21, 2009 07:54PM Report Comment

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31. Sensiblebear said...

TC - yes I would.

Lot's of people do. You'll still earn much more by doing it than 99.99% of people who ever lived. Why complain? Because you can't keep up with the Abramovitches?

Monday, September 21, 2009 08:22PM Report Comment

32. dbc reed said...

@14 CB never mind capital gains on first homes ,the UK had a perfectly workable tax on house values which took rises in your home's value straight out of income under Schedule A.The Tories ,who were in big trouble at the time, abolished Schedule A on houses in 1963 in a cynical move to buy middle class votes.Before then in the 50's house prices had been flat and they remained so throughout the 60's until the Barber giveaway budget fiasco upped the money supply fairly majorly and in a delayed effect from the removal of the tax, in the early 70's house prices rose in the sharpest spike of all time.I can dimly remember my parents' generation being afraid to add on extensions etc on their houses fro fear of their income tax going up; one of many reasons why a tax on the value of the land is preferable, others being to force developers sitting on land banks of building plots with extant planning permissions to build and to make infrastructure construction self-financing by tapping into the accompanying rise in land values.

Monday, September 21, 2009 08:31PM Report Comment

33. mark wadsworth said...

@ debtfree "What if someone lives in a mortgage free house but is out of work and living off savings, should they pay tax just because someone says your house is worth x amount ?"

Why do you find it acceptable for people to be expected to live off cash savings but not live off the accumulated value in their house?

Remember we are talking about a 0.5% tax on houses worth > £1 million. If the Lib Dems collect £2,500 from somebody in a £1.5million house (the bulk of the value of which has been accumulated at no effort whatsoever apart from the efforts of the government to restrict housing supply) that is about as much income tax as somebody pays who has saved up £100,000 from the sweat of their own brow (once you take inflation into account, that is taxation by stealth).

In the long run, that 0.5% is less than ten per cent of the capital appreciation in the property (which is a subsidy by stealth).

Monday, September 21, 2009 08:35PM Report Comment

34. Woohoo2 said...

Mmm. It seems that HPCers are as infected as everyone else in the end with the virus that has caused everyone to change their perception of what a home actually is.

Not that long ago a home was a home. Now it's just a financial product. This discussion proves it, because when you strip away the HPC vested interest of wanting to get house prices to fall by any means, there is no real commitment to treating a house as a home. Why else would a policy of forcing pensioners out of homes which have risen in 'value' through no fault of their own get a fair wind on HPC?

Tuesday, September 22, 2009 08:40AM Report Comment

35. 51ck-6-51x said...

It is well known that transaction taxes ( of which this is one ) add volatility to the taxed asset be it a share or a house.

It would be far better to remove the tax relief given to interest payments, it would remove market distortion rather than add to it whilst putting more in state coffers.

Tuesday, September 22, 2009 10:17AM Report Comment

36. debtfree said...

@29 mark wadsworth

"Why do you find it acceptable for people to be expected to live off cash savings but not live off the accumulated value in their house?"

If you have paid for it and the house is not for sale, then what give's somebody the right to put value on the house ?
You own the place and it's nobody's business what it's worth. What I'm trying to get at, is that some people aren't interested in putting £££ signs on everything, if you done your bit and worked hard, paid the mortgage off, why should you be taxed further down the line again.

How would you feel if you paid £50 for a picture 60 years ago and then someone pops round, values it today at £1 million and tells you that you'll be taxed 0.5% if you want to keep hanging it on the wall ?

Tuesday, September 22, 2009 10:18AM Report Comment

37. mark wadsworth said...

@ 666, annual property value taxes are NOT transaction taxes. They act like a higher interest rate and henceforth keep prices low and stable and encourage more efficient use of assets.

@ Debtfree, let's assume there are two people on the same incomes. One bought a house in the 1980s for £50,000 and ends up with a £250,000 house and no cash in the bank. The other bought a much smaller house for £20,000 and saved £2,000 a year in cash and ends up with a £100,000 house and £50,000 cash in the bank.

Which of the two is the more prudent saver? Which of the two should be paying more in tax? The one with a small house, some savings or the one with a house that has earned him a windfall and hitherto tax free gain of £200,000?

What do pictures have to do with it? The value of a picture has nothing to do with the government or society in general - you can take it anywhere in the world and its value won't change much. The value of houses is 99% to do with the government, due to restricting new supply and having artificially low interest rates, building railways and guaranteeing exclusive possession via legal system, police, maintaining roads and so on.

Tuesday, September 22, 2009 11:53AM Report Comment

38. mark wadsworth said...

And if you are going to start talking about valuable paintings, look at property taxes as "insurance". If you bought the painting for a tenner half a century ago, would you insure it for a tenner or for its current market value of £1 million?

Tuesday, September 22, 2009 11:54AM Report Comment

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