Tuesday, February 24, 2009

Tax Property Now

I am inclined to agree with Polly that property gains should be taxed. This is partly for the good reason that she's probably right - Britain needs curing of its property fetish - and partly for the bad reason that I'd love to watch the political tap-dancing required to get this one through. Also, it's exactly in conflict with the current - meaning of the last five minutes or so - government policy which is to get people buying houses by any means possible. Of course, I'd expect corresponding tax reductions elsewhere.


  1. The best way of dealing with it is to move to LVT, land value tax AND move also away fro Pollys income tax fetish.

    Basically money is like water and is always looking for somewhere to run off too. In the Anglo countries land values have replaced gold and the money runs back into the ground anyway.

    LVT would make land use more efficient and would force folks to think a little harder about any excess captial use.

  2. An interesting thing about the US housing Bubble was that it was far from uniform. The parts of the country with the least land regulated land use had less rise and less of a bubble.

    This is a link

  3. Polly is someone who feels a great debt to her fellow man, which debt she proposes to pay off with my money.

    Taxation should be massively simplified, no tax for any income under £10000 for example - not enhanced to encourage fiendish new ways of tax avoidance.

    We don't have all this national debt because we haven't taxed enough, but because we spend too much. It really is that simple.

  4. First it's William (Hamilton-)Dalrymple, now it's Polly Toynbee. Who's next? Seamus Milne?

    Bryan, you need a break, then you can come back and start quoting sound chaps like Burke and Chesterton.

  5. What sort of tax? We are talking about main residences here, aren't we? Not buy-to-let, where capital gains are already taxed (or, ought to be). If it's main residence .... say I have moved jobs and need to move towns - the housing market has risen 10% since I bought my home, so when I sell it I have to pay tax on that gain, then find myself having to pay the equivalent of that tax again if I want to buy an equivalent house in my new hometown, where prices have also risen 10%. I don't like the sound of that much - for one thing, a penalty on moving house will not help with labour market flexibility.

  6. Step away from the Toynbee! That way madness lies...

    having lived in Germany, I can safely say that I prefer their way of doing things, where money is put into pensions, rather than used to speculate. & I agree with what paddy said! we spend too much (not on the arts, obviously!)

  7. According to this, your property taxes are probably the highest amongst developed nations.

  8. Feeling a bit grumpy today then BA, thought you would rattle the odd cage bar or two? shame on you, part time commie.
    And Will, it ain't so much their pensions that differentiate the Germans, their dosh is ploughed into their companies, big time, actively encouraged by the Berlin Govt.

  9. There is something weird here: on taxing capital gains on home ownership - and that is one's home, as distinct from a house which one rents out as a business on which profit is made.

    It is difficult to see, but try the thought experiment: that having a home to live in is actually a cost!

    Not only is it a cost, but it is the largest, or one of the largest, costs for most people.

    If the government were to tax capital gains on homes, they would (in all reasonableness at least) have to allow against any capital gain, all the costs of ownership: which for present purposes, I would say are all those allowable against tax in running a property rental business. I can tell you, as I run a property rental business (well, one nice flat), that the total rental income (ignoring other all costs and anything but 100% occupancy) is 4.133% of the purchase value: sod-all profit there without a capital gain above inflation. Take a look at average mortgage rates over the last two or so years (and before the crash): nice for the tenants; better for them that they are not the owners.

    In addition, there would have to be a fair allowance for inflation. This would require either a special property inflation index (in which case all or much of the capital gain would disappear) or the inclusion of property price inflation in a replacement for CPI/RPI. And do note that this would be far worse for government than reverting from CPI to RPI, as RPI only takes account (at least as I understand it) of mortgage interest rates, not the 'true' inflationary cost of property prices.

    Then there is another issue. My Brother, a consultant town planner, informs me that (the vast majority of) modern homes are built with an expected building life of 70 years. So that's another £1k+ per annum to lop off the average property 'gain' that government will see through their tax.

    Should government wish to tax according to their view on 'profit' from home ownership, not only would we all (rather than just those in the business of 'home rental') have to keep vastly more accounting records, but the government would have to set levels as to 'appropriate' costs of having a 'home' and subtract this from the allowable costs. On the latter, is there any chance the government might (this time) take into account geographical variation?

    On top of this would be a vast horde of additional employees in HMRC: are you a big-government man Bryan, I'd not noticed before. And then there is a further vast horde of accounting and legal types looking for ever more detailed loopholes - so productive for the economy.

    And why is that necessary? In taxation, as in other aspects of life, the perfect escapes us. By seeking perfection (or merely every closer union therewith), the human condition is actually worsened.

    Then we have to consider why there is such an increase in property (well it's actually land) prices! Well, that's simple - it's scarcity of supply.

    That scarcity is down to 3 main things. Firstly, the government restricts the supply of land through planning regulations. Secondly, there is population growth, and this is down to two things other than the birth rate: net migration in and increase in average lifespans. Thirdly there is the increase in single-adult families (and single person homes). There is only one of the above (increased lifespan) where a significant proportion of the problem cannot be laid at the feet of government.

    As for Pollyanna Ms Toynbee, I am (nearly) daily reminded, by the most estimable Mr Timothy Worstall (http://www.timworstall.com/ ) that she is a bit short of the knowledge: on economics, the general, and (so I recollect) sometimes the arithmetic as well. As with at least two of your other commenters, I see her as better avoided in your good recommendations.

    Finally, just at the moment, I think we have other crocodiles chasing us!

    Best regards