These must surely be salad days for our Labour government. Free of any concerns about an effective opposition, they can roll up their sleeves, spit on their hands and get down to some really serious looting:
Gordon Brown is considering imposing capital gains tax on the sale of all houses in an attempt to plug the widening gulf between his spending plans and public finances.
The Telegraph has learnt that Treasury officials have held confidential discussions with private sector tax consultants on extending the levy to domestic properties.
The reform would mean homeowners facing a tax of up to 40 per cent on any profits made from the sale of their home, which for many people is their principal asset. The levy would, however, raise £11 billion a year, equivalent to 4p on the basic rate of income tax, according to government figures.
I think some clarification is required because the opening paragraph is not entirely correct. Currently a tax of 40% is charged on all capital gains which includes the capital gain made on the sale of property or land. However, one’s principal dwelling home has always been exempt from this charge. Now HMG is proposing to abolish this exemption (although the effect is the same as imposing the tax on ordinary homeowners).
The Chancellor has already indicated, however, that he believes that homeowners are “lightly taxed” and is looking for additional methods to control the buoyant housing market.
‘Lightly taxed’?!! The guy has got some nerve. And it’s abject drivel that this is about controlling the ‘bouyant housing market. This has been on the cards for a while. Gordon Brown has already plundered private pension funds and I knew that it was only a matter of time before he turned his avarice on the last stores of privately owned wealth. There was no way he could leave all that booty untouched with a ballooning public sector into which money must be shovelled like coal into a roaring furnace.
It’s a no-brainer for the government. A general election is still as much as three years away and they are going to win it handsomely anyway. In the meantime they can placate their opponents on the left and reward their supporters in the state sector.
The way things are now, there is nothing to stop the state from growing until the bones of the last taxpayer have been picked clean and left to bleach in the sun.
Homeowners “lightly taxed”! What an appalling statement and preposterous rationale for levying a tax on one’s primary residence. Gordon Brown should be flayed alive. Metaphorically speaking, of course. Is the British public so supine to tolerate imposition of such a tax? If so, you might as well be Belgian or French.
Does this mean that government ministers are “lightly beaten into a pulp” and that the people ought to remedy this glaring injustice right away?
Sorry, but that really slays me.
Twice in the past thirty years the housing market has had a runaway boom, and on both occasions the bloody politicians have interfered, by moving the goalposts re taxation and allownces.
On both occasions the resulting slump in the housing market caused a lot of over-extended people a lot of grief and anguish. It would be all too easy to blame greed for their plight, but, as in all these situations it is the ‘first time buyer’, and the inexperienced who get shafted. The sort of folk who are urged to over-commit themselves at a stage in their careers when the inability to change location could prove fatal to any sort of financial or career planning, the very people who will find themselves ‘upside down’ on their mortgage payments, and will have no alternative but to hand the house keys to the mortgage company, with the subsequent loss of their life savings. It has happened twice in recent memory, and it will happen again….
So much for a stable financial environment, when the Chancellor changes the rules on a whim and a fancy every few years. How can anyone have the faith and confidence to believe in such a system?.
My old Grandpa used to say that any money you make in life is only lent to you, and the bastards will get every penny back, if not before you die, then shortly after. He wasn’t far wrong!
Even if there was any sort of opposition, the same thing would occur, after all, the Tories caused the last two home ownership recessions. (Traitor Heath and Fool Major).
Just think of all those second homes abroad and in UK, all bought on second mortgages, and financed on the expectation of 20% p.a. capital increases. But, and it is a big but, the property has to be sold to realise the profit, and people have to sell for a variety of reasons, other than to realise the profit, the Chancellor knows this and obviously thinks that the market has reached the stage where it will enter a ‘selling’ phase, hence it is time to pluck the fruit from the tree, or put another way – to ‘pluck the pheasant’, who was it who appropriately called the Chancellor a ‘pheasant plucker’?.
Enough rant.
Let me guess, the £11 billion figure is based on the assumption that it’ll be a zero sum game and housing sales will not drop. You can rest assured they’ll spend £ 11 billion and squeeeeeel when the money does not materialize.
Seems like the makings of another Prop. 13 style tax revolt here. You folks in the UK have no provision for plebicite, do you?
I actually see no more objection to a capital gains tax on one’s primary residence than I would have for any other tax. But they must allow exemption for funds that are rolled over into a new residence in a timely fashion.
“Democracies fall when the electorate find out they can vote themselves the treasury.”
So anyone reading the Sunday Telegraph who has thought about moving will do so immediately to lock the value into their new property.
How quickly could it be introduced? Would it be retrospective at all?
Sounds like an electoral suicide note to me. The Tories aren’t that far behind in total votes, even if the number of seats to gain is high.
Don’t forget the high majority was won in one go in the 1997 election, so there’s nothing inherently stopping it going back the same amount in another election, if only the Central Office cretins grew up enough to even have a mental age of 5.
The other thing the Treasury (and the “private sector tax consultants”) have noticed is that now private pensions are such a bad deal, people are refusing to be bullied into them, and are choosing to put money into their houses instead.
That’s bad for the Treasury, because it locks funds up in assets rather than recirculating them to be taxed again. It’s bad for the insurance industry, who are going to sell fewer annuities and take fewer five- and six-figure sums in management charges and commissions. And it is bad for retired revenue staff by reducing opportunities in tax-consulting to supplement their own, tax-funded, pensions.
Simple tax breaks don’t help anyone with a financial interest in a complicated tax system.
“lightly taxed” (can still afford heat on sundays and holidays)
Two thoughts. The first is that this may well be a typical ‘New’ Labour deliberate leak, designed to soften us up. They get the press agitated by suggesting a full implementation of the tax, then introduce it at a ‘reduced’ rate, hoping the lemmings will heave a collective sigh of relief and think ‘well, that wasn’t so bad, after all – only 28%’.
My second immediate reaction is to feel a slight (masochistic) sense of pleasure at the betrayal of all the credulous home owners who were so stupid as to have been deceived by Bliar and his cabal of Scottish class-envy merchants in the first place. They deserve what they get.
Sadly, the rest of us have to suffer, too.
Like G Cooper, I had my little moment of Schadenfreude, although it wasn’t actually full blown Schadenfreude because you have to have a terrible awareness descend on the other party to get that genuine zesty feel. I think the people who were so easily misled by the blatantly deceitful Blair have yet to reach enlightenment. They’ve seen their pensions robbed to pay for laughably ineffective public services and now the chief asset of most of them, their bricks and mortar, is to be plundered, too, to finance the further expansion of the state. And, G Cooper, I think most of them still do not get it. Inexplicably, many victims of the rape and pillage of the private sector will vote for Blair for a third time. Maybe it’s some weird variation on the Stockholm Syndrome.
Well, by 10am the Treasure moved to kill the story. Not bad going for a Sunday morning. Evidently, our socialist masters didn’t want to to worry our little capitalist heads off. It would be nice to know exactly where the story came from. Don’t suppose we ever shall.
If anyone thinks that removing the CGT exemption on homes would “control” the property market they are either knowingly dishonest or deluded. If you have to absorb the outrageous 40% tax on your profit when selling, you will tend to hold out for a higher price. This will either result in that higher price or the property will not go on the market, leading to a reduction of supply while emand is consistent, result higher prices. Either way prices will go up.
Frank,
Your concept of supply and demand is a bit simplicistic. Property is already overpriced, by any criteria you care to choose.
The pool of people able to afford to buy is shrinking all the time. Said pool is only maintained by the mortgage lenders increasingly relaxing their qualification for being a borrower, a sure recipe for financial disaster.
If people want to sell, they will have to accept that they are going to have to pay some form of CGT, and will just have to get used to it.
Lastly, don’t forget all those people who have to move, for whatever reason, they do not have the option of waiting for a sucker to come along.
The general effect on the economy as a whole, will be to diminish optimism for the future, and could well forshadow a general decline in growth, which is opposite to what the Chancellor is forever telling us.
As pointed out above, the home is the last bastion of hope for acquiring any real capital, and once that is gone, what ways are left to save for that rainy day?.
The private pensions fraud will only work once, half a percent interest on savings doesn’t cut it. Looks as though we will all have to get one of those comfortable little ‘nine-to-five’ government jobs, with the generous pension plan…
This sort of adjustment has been tried twice before, with distastrous results: Lesson – learn from history….
Kevin,
No real problem with a tax on gains on homes, I would agree, but this was built into the system a long time ago, and is all part of the calculation, it is the change, and the reasons for the change that are really the problem.
I say bring it on. The sooner the public sees the teeth and has to really pay for “New” Labour, up close an personal with big bucks, the better. Perhaps not voting them into office next time could really happen.
Ho Hum… here’s hoping!
I always thought tax was just the modern replacement for slavery. Or am I missing something here?
I think you are all being too pessimistic. If Labour were foolish enough to do this it would be their Poll Tax. So crucial is the housing market to the British economy that the Tories just have to promise to retroactively repeal it and it wouldn’t matter how useless they were otherwise, they would walk the next election.
Of coure, that won’t happen because all those Blair automatons on the back benches might be willing to do whatever they are told on other matters, but not when it comes to something that would cost them their seats.
1. Buy drill presses and machine tools.
2. Make some spiffy little submachineguns.
3. Remedy this whole bunch of bullshit you have going on over there.
– simple 3-step plan.
James – and I hope the Tories would also promise to retroactively repeal any EU “constitution” which Tony Blair had signed on behalf of 59m Britons without their consent.
I had been going to put a clause in there: “Tony Blair had, in the cause of insane personal ambition, signed …” but it would have been de trop. The signing of it is all. And he will sign it.
Just for my general enlightenment, do you folks also pay an ongoing tax on the value of your homes? If so, is it on the purchaced value, an appraised value, or something else?
In considering the comment about householders who were putting their money into their homes, rather than retirement accounts, it strikes me that there would also have to be exceptions for those, and other purposes. These would include education for dependents, and medical savings accts. (well, perhaps only for Brits that want to come to the US and pay out of pocket for quality care).
Like G Cooper above, I suspect that this leak is to test the waters and soften us up. My guess is that any reduced rate might be lower than 20% – possibly 10% or 5% – if of course it is ever brought in. It would probably be aimed at higher taxpayers only or at properties above a certain threshold value.
Personally I think that the housing market would either dry up switch to a rental rather than buying market.
“Lightly taxed” indeed. The bastard.
The root of the problem is so-called “private” property. No “private” property, no property taxes to worry about.
The weekend of the birth of Gordon Brown’s son: a good time to bury bad news?
You can’t get public assistance at a nursing home in the UK until you’ve been shorn of most of your assets including your house. They let you keep pocket money.
Of course there’s a shortage of decent nursing homes because extremely costly regulations have been imposed which make them unprofitable.
But, hey, don’t even little capitalists deserve to be taxed into oblivion and imbued with the fear that afterward they will be turfed onto the street?
These Labour pricks will never give up until the entire population lives in Government-owned housing — think: Winston Smith’s flat in 1984.
Leeches.
Ernest Young: “Property is already overpriced, by any criteria you care to choose”
Any criteria, that is, except the market.
Alan:
“Personally I think that the housing market would either dry up switch to a rental rather than buying market. ”
You are the only one who realised the real meaning of this. Gordon Brown WANTS it to change to a rental market, to bring us “into line” with Europe, which in turn is required in order to proceed with the rest of “the project”.
And for those who think it will be introduced at 10% – well yes, it will…in the first year.
Prepare to be fleeced yet again.
Another paranoid thought: We’re just a couple of months ahead of the deadline at which council flat right-to-buy is extinguished. What a good time to suggest that there’s nothing but pain to be gained by taking up those discounts.
Kevin Connors:
It’s too horribly complicated to explain in a comment. To simplify grossly: there is a local tax on occupiers graded nationally according to what the value of the property would have been at a certain time in 1991 if it had existed in its current state and been held freehold; if you don’t own or rent personally, the benefit of living in the property can be taxed as income on the basis of applying an official interest rate to cost-valuation less £80,000 and adding the amount of valuation for the purposes of an entirely different property tax that was abolished some time ago.
On another topic, there were a number of people expressing glee (rather in bad taste) at the health situation of our esteemed first comrade.
Wake up people, Gordon Brown is the alternative. Unrestrained he could single handedly take the UK back to the dark ages.
Frank,
According to a number of reports published lately, the housing market is at best, ‘on a plateau’, and in the more highly priced sectors, actually has suffered an appreciable decline.
When you consider a ‘two-up, two-down’, terrace house at 140,000+, which is basically a ‘pile of old crap’, and which is something like five times the average persons annual income, then that is what I consider to be substantially overpriced.
The old rule-of-thumb, used to be three to three and a half times annual income for mortgage purposes – after the usual ten percent deposit..
Foe every boom, there is a bust – it’s a fact of life, but of course the more greedy folk don’t like to hear that, it’s called being in denial…
Jonathan – What’s wrong with bad taste?
Second, although a large tranche of peculiar people inexplicably find Blair ‘charismatic’ and are thus allies in their own victimisation, I’ve never read that anyone thinks Brown is a charmer. Rather the opposite. His looks and manner turn people off. So, his looks and personality, along with his rapacious attitude to other people’s money, would mean that he wouldn’t be in for long. Having Brown as PM would be the best thing that could happen to the Tories.
Besides, nothing is certain in politics. It may not be Brown.
The biggest problem with a tax on principal residences is that real property is fixed. Any outlays by way of improvements is applied to basis, and if is a principal residence (and not a rental property) it is not being used in a business sense to make profit, and might have a value based on discounted cash-flow or the like. It is essentially fixed and any gain in value is by and large inflation (unlike a property held as income producing which has both inflation and market performance components, and I’ll set aside the double taxation issue from this argument). So in effect such as tax is an assessment on the increase in the cost of living due to inflation. Hopefully there will be an exemption to the tax if the proceeds are put into a new principal residence or people will suffer a huge decline in standard of living for the right to move.
But I suppose any tax needed above and beyond administrative needs of the gov’t is irrational and unfair on whom it is placed. Perhaps an earlier comment has some merit, let people see the result of Big Government first hand and perhaps they will view it differently. That is the main problem in the US as the Federal Debt expands is that the bill has yet to come due so the mass simply enjoys the handouts now and is not punished by the consequences setting up more of the same. Unfortunately the bill in the US will come due at about the time I retire (~30 years) and the entitlement programs are ravaged by the boomers leave me to make up the shortfall in the intergenerational transfer ponzi scheme. At least I have that to look forward to. I’ll have the satisfaction as I turn blue on my death bed, unmitigatable due to lack of savings or gov’t funding, of all the Good done with my money for strangers already long dead before me. That is the form the ‘bill’ will take when it comes due.
Verity ..
What’s wrong with bad taste?
It is of course a valid lifestyle choice and should not be discriminated against in anyway 🙂
You are probably right about Brown being the answer to the Tories prayers. It just scares me to think that a change of Government might first need his hand on the tiller (or in the pocket).
Of course a leadership election always throws up interesting results, John Major was a suprise to many.
Ernest Young:
The problem in discussing “outrageous” house prices is that there is so much wishful thinking about prices coming down.
The fact is that house provision in the UK (and in Ireland – we have a similar “problem” here) is highly regulated. To obtain planning permission to build houses is a costly and time consuming exercise and often ends in failure. This restriction of supply in the face of a constant demand (fuelled by “cheap” money) leads to high prices.
Your basic two up two down might well be a “pile of old crap” but in the current market that pile of crap has been assigned a value of £140,000. That’s what somebody is willing to pay for it.
There are two ways that house prices can come down. 1) As you identified, a bust. For this to happen you will need to see a pretty serious recession. or 2) Liberalisation of planning and zoning controls leading to increase of supply. My mother in law lives in Florida (having sold a “pile of old crap” in east London!) and that £140,000 would buy you a pretty spacious house on a half acre. Florida is just as, if not more, prosperous than the UK, interest levels are similar. The big difference is that it is a lot easier to obtain planning permission to build houses.
The bottom line is that interventions into the housing market by tackling demand instead of supply usually have the opposite effect to that intended.
Frank,
The slump in housing during John Major’s reign, was caused by nothing more than a change in mortgage tax allowances. House prices fell by 50% or more in less than six months. We were in a period of transistion at the time, but certainly not a slump.
The price that houses are advertised for is not always the price received, and an agent acquaintance tells me that properties are ‘on the market’ for much longer periods now.
There is always the argument that the lower end housing prices regulate the speed of the housing market, i.e. they have to be sold to enable the seller to purchase the next rung. As I pointed out earlier, ‘starter prices’ are now getting ‘out of reach’ of your ordinary ‘Joe’, therefore these properties are on the market for longer periods, and signals at least a dip in the market, if not a full-blown downturn.
As a previous commenter points out, the increase in residential property prices is purely inflationary, and I wonder how long before such inflation works its way through to the economy in general. That other generator of inflation – taxation – is also getting rapidly larger, it can not be too long before interest rates start to rise again..”in order to counteract such inflation”. (At least that is what they will tell us).
Ernest:
Ok, perhaps we are arguing at cross-purposes here. House prices can certainly go down as well as up and there are of course factors such as you describe that will lead the market this way. When I mentioned the two ways property prices can come down, I meant down towards your “affordable” goal, not minor drops.
My principal point is that a government intervention such as removing the CGT exemption would tend to increase rather than decrease prices. The idea that by discouraging sellers (supply) you could somehow make buyers (demand) give up the ghost is economically illiterate.
By the way: You cannot be serious in claiming that the property slump of the early 1990s was anything to do with mortgage tax allowances. The country was in serious recession, people were losing their jobs, interest rates went up, people couldn’t keep up mortgages, houses were repossessed and the whole thing tumbled. It is easy to see how someone who lost their home then might think their house was “overpriced” when they bought it, but that is only because they have the benefit of hindsight. Property now will only be proved to have been “overpriced” if there is a major property slump. Indices such as a particular multiple of income are really meaningless.
The tax adjustments under Major were a relatively minor effect compared to a doubling of borrowing costs in a dodgy job market.
What did for house prices under Major was a doubling of interest rates. The boom started with interest raes of roughly 7.5%. For a year (Oct 1989 to Oct 1990) they were at 15%. (See
http://www.houseweb.co.uk/house/market/irfig.html
)
Essentially, the interest payments now are less than a third what they were in that period. If rates go up, expect to see blood in the streets of suburbia. Real blood, now that repayment mortgages make the negative equity safety net harder to fall into.