Reply to: Idiot calls for a new wealth tax

[John Galt]

Isn't it about time that the Government started encouraging the generation of wealth rather than the taxing of it?

[boredsenseless]

While initially based on property values if one is unemployed or retired it gets reduced. Also if their is a single occupant you get 25% off.

Surely we already pay taxes on 'over-inflated' housing its called council tax, and for those that either have to or want to move its also called stamp duty.

[zathras]

Does the Council Tax have an income element? I thought it is based purely on the size of your house.

While initially based on property values if one is unemployed or retired it gets reduced. Also if their is a single occupant you get 25% off.

[shaunbhoy]

Okay, so just tax homeowners on the house they live in.

Why don't you **** off?

[wendigo100]

The only answer is to introduce an income element into the equation and what you get is the Council tax!

Does the Council Tax have an income element? I thought it is based purely on the size of your house.

[zathras]

Well after reading the paper I actually liked some of his ideas. He wants to replace other taxes such as the council tax with the property tax and not just introduce another source of revenue for the state.

When some sources of income (house price inflation) are not taxed and other sources of income (stocks) are, it makes the market less efficient because people no longer choose their investments according to their real value.

Of course the problem is that this tax can lead to a major drop in house prices...

Biggest problem with this is fairly simple and was used as one of the arguments against the Poll Tax. Take someone who bought property decades ago. They are now retired and the modest income they get having paid the mortgage off, got kids through College and University. They do not have a large disposable income

Next door we have the new couple. Still with a big mortgage but also on a fairly good wage and plenty of disposable income.

Tax the property and the old couple having invested in society are now forced out of home because they cannot pay the tax. That means they downgrade and as they have a large chunk of change, they will then find a home is out of the question. Means tested benefits are denied them because of this large chunk of cash. Having paid their debt to society over 40-50 years society discards them. Had they not bothered then society would pick up the tab. You discourge thrift and develop a society full of those who depend on it.

The only answer is to introduce an income element into the equation and what you get is the Council tax!

[AtW]

I think the article misrepresented this in calling it a wealth tax. What it actually should be is income tax on the "deemed income" from the services your house provides to you.

There should be a law that requires all senior level politicians and civil servants to be subject of any tax laws for a few years prior to roll out to main population.

[wendigo100]

Doesn't all this further complicate a complicated tax system? I thought we were in favour of simplifying it.

I'm most worried about how you arrive at what the value of your house is for tax purposes. It is not the same as having 6 or 7 broad bands, as with council tax. Is it to be deemed by HMRC, meaning that anyone who disputes it will have to tangle with their inspectors, like IR35 and S660 victims?

[IR35 Avoider]

You receive "income" in the form of services from your house

Just to expand on this. Assume I want to retire in my current home, and that I need 400K of capital to generate income to meet my non-housing needs. If I own my home I will pay tax only on the income from the 400K.

Assume the flat is worth 400K. If I sold my flat to a property unit trust in exchange for shares in the trust, rented it back, and used the investment income to pay the rent, suddenly my tax bill would be based on income from 800K of capital, more than doubling even though my overall financial circumstances were really unchanged. This is an anomaly the proposed tax would correct.

None of which means I'm in favour of it. (I used to be, because I think it's right in principle, but now I think it's to complicated to be worth the effort.)

[VectraMan]

1. How much money are you making on your home (the one you live in) while you are holding it? None.

2. You only make money if you sell. Like other investments, house prices can go down as well as up. But this bloke is suggesting a tax on value regardless of profit or loss on sale, which is hardly the same as other investments.

I disagree with that, but I was arguing that a gain because of house price rises ought to be treated like any other capital gain, because a house is an investment (otherwise why not just rent?).

1. An old boy who bought his modest house for ten grand thirty years ago might find it worth 200 grand now - if he needed to sell he'd pay tax on 190 grand. It is the equivalent of paying an inheritance tax while he is still alive!

You'd have to structure it so there was an allowance per year of ownership, and allow for inflation, but basically yes, the longer you stayed somewhere the bigger the potential bill at the end. But then that's paid out of the profits from the sale. The government would control the allowance, which would help keep a lid on house price rises.

2. A couple who bought a 250 grand flat in London last year and are trying to shift it for 220 grand today - do they get tax relief?

Seems fair.

Really this comes down to the question of the expemption of capital gains tax on homes, which encourages out of control house price booms. I think the economy has been hurt enough by that over the last 15 years, so maybe it's time for a change.

[IR35 Avoider]

1. How much money are you making on your home (the one you live in) while you are holding it? None.

You receive "income" in the form of services from your house, this income is currently untaxed in the UK. Several other European countries do tax it, and according to the article the UK used to until 1960.

2. You only make money if you sell. Like other investments, house prices can go down as well as up. But this bloke is suggesting a tax on value regardless of profit or loss on sale, which is hardly the same as other investments.

I think the article misrepresented this in calling it a wealth tax. What it actually should be is income tax on the "deemed income" from the services your house provides to you. If we estimate the "deemed income" at about 5% of the value then basic rate tax of about 20% on that equates to 1% of the capital value. Of course you should be allowed deductions for repairs and maintenance, and (to be completely logical) mortgage interest, which then starts to make the whole idea so complicated that it's not worth pursuing.

So, if you want to tax capital gains made on a house if you sell it, that is something different, but you will get an inequitable tax.

1. An old boy who bought his modest house for ten grand thirty years ago might find it worth 200 grand now - if he needed to sell he'd pay tax on 190 grand. It is the equivalent of paying an inheritance tax while he is still alive!

2. A couple who bought a 250 grand flat in London last year and are trying to shift it for 220 grand today - do they get tax relief?

Capital gains (and losses) are a completely separate issue. (If we're going to be completely consistent and logical the CGT exemption for home-owners should be abolished though.) Just as you pay income tax on dividend income from shares and CGT on the change in value, you should for your own house. The tax in the article actually represent the tax on the income, even though it is calculated from the capital value. (The article was wrong to represent this as a wealth tax. A wealth tax, which is payable on all wealth not just houses, like they have in France, is an alternative to CGT; you shouldn't have both within the same system since they are taxing the same thing.)

[ASB]

1. An old boy who bought his modest house for ten grand thirty years ago might find it worth 200 grand now - if he needed to sell he'd pay tax on 190 grand. It is the equivalent of paying an inheritance tax while he is still alive!

2. A couple who bought a 250 grand flat in London last year and are trying to shift it for 220 grand today - do they get tax relief?

1) Sadly there are continuous rumours about this. But it would be an ambitions man who removed the PPR exemption. Still, it should at least help reduce IHT. Or perhaps they'd forget that bit...

2) I would expect they would. Same as you currently do in that situation. But it would only be allowable against income of the same type. [Likely property would become a specfic tax to prevent it being reclaimed against anything other that other property transactions]

[ASB]

Personally I do think most investment taxes are not good. They stifle economic development to a large agree.

Why? Disincentive to hold a stake. You start with income, taxed. You invest in (be it in another houses XYZ plc or whatever). The consumption helps create employment. XYZ PLC's employees get taxed. XLZ make a reasonable profit. They get taxed. They pay you a bit of income - already taxed, but possibly taxed agains. At some time in the furtre you flog the shares in XYZ to repeat the process with ABC. You get taxed. The ability to fund economic activity is now diminished.

governemnts taking a short term view (they can't do much else) cause a lot of the problem. They want their pound of flesh now, but the natural maturity of what they are taxing is a long way away. That is one of the reasons the welfare state is in such a mess - paying everything out of current income.

To be fair capital tax reliefs are quite generous, and a lot can be done to avoid them.

[stackpole]

The great majority don't have stocks and shares, but many have made more money on their home than they might have from stocks and shares, so why is that tax exempt?

Buying a house is an investment, so should be taxed as one.

Of course it isn't.

1. How much money are you making on your home (the one you live in) while you are holding it? None.

2. You only make money if you sell. Like other investments, house prices can go down as well as up. But this bloke is suggesting a tax on value regardless of profit or loss on sale, which is hardly the same as other investments.

So, if you want to tax capital gains made on a house if you sell it, that is something different, but you will get an inequitable tax.

1. An old boy who bought his modest house for ten grand thirty years ago might find it worth 200 grand now - if he needed to sell he'd pay tax on 190 grand. It is the equivalent of paying an inheritance tax while he is still alive!

2. A couple who bought a 250 grand flat in London last year and are trying to shift it for 220 grand today - do they get tax relief?

[threaded]

Well, if that is the case, I think people who live in rented accomodation are avoiding paying their proper proportion of tax so should have a 'deemed' house valuation placed on them.

It is only 'fair' you see.