Sobers dons his politician's hat and speaks thusly:
... when you have different land use types side by side (which happens a lot in towns and cities) you get the situation of a house paying the same rate of LVT as a business like a supermarket. One being a private residence with the only money coming in being the owners income, and the shop bringing in hundreds of thousands. [and by implication that the poor long suffering homeowner would be 'priced out']
That is the sort of fact-free polemic that voters in this country go for, I'm afraid, which is why we are in the mess we are in. So let's re-run that example with cold hard facts. Let's do a Real Life Example.
1. As it happens, where I used to live was a normal London suburb (part of Waltham Forest) - mainly houses, with a high street, a couple of small industrial areas and a sodding great supermarket/car park.
2. Using the Big Bath approach, we established that the LVT rate in Waltham Forest would be in the region of £44 per square yard per year, and using the "total value x 8%" approach we get a rate of £93, so let's split the difference and call it £68. This is the rate we'd require assuming we were to replace all other taxes.
3. Helpfully, we can look up the supermarket on the VOA website and establish that it the building (single storey) is 7,984 sq yards and the Business Rates bill is about £704,000. The car park is not listed on the VOA website (assume very low Business Rates, if any), but it is one-and-a-half times as big as the building, giving us a total area of 20,000 sq yards and an average Business Rates of £35 per square yard.
4. We know that the supermarket can easily afford the increase from £35 to £68 (it's TESCO, for crying out loud).
5. The next question is, would people in the mainly terraced houses surrounding the supermarket be able to afford to pay £68 per square yard? The gardens are very small, the average total plot size is 300 sq yards, let's say, so the typical tax bill would be £20,400 per annum.
Let's compare that with the current tax bill of somebody who'd like to buy a house in the area:
6. Houses round there are very expensive, say £350,000, so if you want to buy one with a £50,000 deposit and a mortgage of four times salary, you'd be earning £75,000 gross, or more realistically, a couple earning £37,500 each.
7. The Online PAYE Calculator tells us that the tax deducted from a salary of £37,500 is £9,700 each, plus the Employer's NIC of £4,000 each, plus VAT, which is about 7% of gross incomes = £5,200 (for the couple), plus Council Tax £2,000 = so the total publicly collected taxes borne by that couple are £34,600.
8. Under LVT/CI, they'd be paying £20,400 a year (from 5. above) and would be getting a Citizen's Income of £3,500 a year each, so their net tax bill would be £13,400, a lot less than £34,600, eh? The LVT rate would have to be £139 per square yard before this potential couple is worse off by buying a house there (in which case, they'd just offer a lower price).
Yes, I accept that there's a margin of error with these figures, and I haven't taken into account changes in house prices/land values, but as you can see, a reasonable rate for the supermarket is not an unreasonable rate for people who want to buy a house in the same postcode sector.
Put On Your Big Boy Pants, Maybe?
25 minutes ago
28 comments:
Look how many times do I have to say it - not everyone who is living in a house has the income to buy it at current values!
Millions of people live in houses they bought years ago when houses were cheaper, and have paid off the mortgage, some have made money on smaller houses and traded up, some have inherited houses or capital and used their inheritances to partly buy their current house. You're assuming EVERYONE has the minimum amount of equity in their house for God sake! Which is obvious nonsense.
Millions of people will be in the position that their current tax bill plus their CI will be considerably less than their LVT bill. What are they supposed to do?
I guess its just hard cheese if you inherited the family home - MW says only rich people can live there now.
Meanwhile Tesco down the road is coining it in. Tesco made £3.4bn last year, and paid 28% corporation tax which is £950m in tax. It has 147 Tesco Extra stores and 433 normal superstores. Assuming they're all the same size as the one you mention and all pay the same LVT (which would probably be lower in places outside London) their LVT bill would be around £790m. (20,000 x £68 = £1.36m, 580 stores at £1.36m = £790m approx.)
That's before any other tax savings - no employers NI on 260,000 employees for a start, no business rates, no CGT on sites they buy and sell on for a profit, extra revenue from goods that used to have VAT on them, but they still sell for the same price as before.
LVT - good for Tesco, bad for people who couldn't afford to buy the house they live in from their income right now.
He's got a point there, Mark. I bought my first house, a two-bed terrace in Battersea, for £67K. If I was still living there (and I probably would be if I hadn't been made redundant), I would have long ago paid off the mortgage (because that's where I used to put my savings) and be living on a low income in a house worth probably £350K. At 8% LVT, I would be paying £28,000 pa tax, £24,500 after CI. So I would have to be earning something in the region of £55K to break even, which would be likely for me, but not for any of my working-class neighbours who had bought their houses in the sixties or seventies or inherited them.
S:"not everyone who is living in a house has the income to buy it at current values!"
That is quite true. I would barely have been able to buy my previous house on my salary. I have been saying this for nearly ten years, and highlights just how crazy house prices are.
"Millions of people will be in the position that their current tax bill plus their CI will be considerably less than their LVT bill. What are they supposed to do?"
1. Try earning more.
2. Take in a lodger.
3. Cut back on other items of expenditure.
4. Ask relatives or potential heirs to chip in.
5. Go to the local council and see if they are running any rebate or deferment scheme for Favoured Groups.
6. Hope that more new housing gets built in the area to try and bring prices down.
7. Trade down into something smaller.
As to TESCO, you are doing your politician's thing again and using examples of Big Greedy Corporations Who Make Lots Of Money and saying that "If they end up better off, then that's an argument against LVT" which I should ignore really, shouldn't I?
I hope you realise that TESCO is a plc, it is owned by shareholders, and what's good for TESCO is good for their workers, customers, suppliers and shareholders, a lot of whom will be little old ladies, pension funds etc?
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B, of course there will be some people who have to do some or all of the items 1 to 7 listed above. What if somebody is half way through paying off a mortgage and loses his job? How is that any different?
It's funny isn't it, when the Tories suggest reducing HB cao, or charging higher rents for social housing, all the right wingers shout "Yippee! If they can't afford it they can move elsewhere!".
And if the Tories were to suggest sacking a few million quangista, all the right wingers shout "Yippee! Let them go and find a proper job!"
As a proper right winger, I shout "Yippee!" to the first two, but don't expect me to go all soft and cuddly when it comes to The Hallowed Homeowner Who Must Be Protected From All Nastiness That Ever Happens.
"HB cao" = should read "HB cap".
Moving slightly from Utopia towards the real world, is there any evidence that personal income tax, as opposed to corporation tax, acts as a drag on the economy?
As many have pointed out in comments to other posts, businesses are, in reality, a legal fiction; it's individuals who end up with the money at the end of the day. Bringing in the Politics of Envy, no-one really gives a damn about what profits Tesco makes, it's to whom those profits go that's important to them, similarly with banks.
OK it makes things a bit more complicated, but it's still only one tax; LVT moderated according to income. Much better than, as you have suggested, LVT plus a lot of other special taxes like a tax on bank incomes. This modification would link taxation more closely with ability to pay and, as a bonus, would get rid of the Poor Widow Bogey without having to make any special exemptions.
B, I'm not aware of such research. As it happens, I think corporation tax is not as bad as income tax because:
1. If you scrapped income tax and kept corporation tax, it would be an entirely voluntary tax - nobody is forced to incorporate.
2. The corporation tax man is just like an unwelcome shareholder who gets nothing in the start up phase, 28% of the profits in the good years, and who gives you a bit of money back in the bad years. Companies are supposed to be there to maximise profits for their shareholders, regardless of who those shareholders are, so corp tax doesn't distort behaviour as much as people think.
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Yes of course, we can think up several sensible transitional and relieving provisions, phase it in over five years or ten years, or just make it apply to people born after 1990 etc.
One that occurred to me recently was e.g. if there are two areas with similar house prices (Colchester in Essex, and Cornwall - a semi costs £200,000 in each) but vastly differing average wages £20,000 in Cornwall, £30,000 in Colchester, you could set the LVT rate slightly lower in Cornwall and slightly higher in Colchester.
Or, the simple and obvious one is to set a cap of x % a household's gross income for LVT (anything above that just gets waived), but this to be time limited and restricted to that household staying in that residence. The cap would start off at 40% but then go up to 50%, 60% etc until the people got the message.
And if house prices were to fall, then there'd have to be some sort of rebate for people who are in nequity, or else they end up paying twice.
And so on.
Surely all this points to one thing I think we can all agree on - house prices are far too high. And we need to prevent them having any more bubbles in the future, as and when they become more affordable, either through falls in prices, or by rising incomes.
Is it not more feasible (and politically acceptable) to introduce measures that should have been introduced in the last boom, but weren't? Such as caps on loan to value ratios, minimum equity amounts and a ban on any mortgage without a repayment mechanism?
Allied to a loosening of the planning restrictions (perhaps allowing a limited number of houses per year to be built on open land subject to certain criteria for example), these measures would prevent any future housing boom. Prices would only rise as peoples incomes rose, as they would not be able to leverage themselves up using cheap finance, if it is available.
This would have the added bonus of meaning there would be extra cash floating around looking for an investment return, as the amount that could be lent for housing would effectively be limited, and this cash would probably find its way towards industry. Which would be better than housing.
S: "Surely all this points to one thing I think we can all agree on - house prices are far too high. And we need to prevent them having any more bubbles in the future, as and when they become more affordable, either through falls in prices, or by rising incomes."
Yes of course, and as I've said before, we had a period of house price stability from 1950 to 1970 when we had:
1. More new construction
2. Sensible lending rules
3. Schedule A tax and Domestic Rates (approx = to modest Land Value Tax).
4. We also had strict rent controls and savage taxation of rental income (but I do not advocate that).
But remember: you cannot rely on rising incomes to make housing more affordable, as house prices adjust so that they soak up all the extra income. I have explained this before and given proper statistics to 'prove' it.
And as to Bayard's Battersea example, let's assume single earner who has paid of original £67,000 mortgage would have to be earning £55,000 to be able to stay living there (or if he earns less, he would have to cut back on other spending etc)...
BUT at £350,000, you'd have to be earning about £70,000 to be able to buy it without totally ridiculous mortgage AND you'd have £17,500 a year mortgage repayments (but the incumbents who bought years ago for £67,000 have little or no mortgage).
THEREFORE, for a given net living standard after housing costs, an incumbent who bought there years ago who earns £40,000 a year would have the same disposable income after housing costs as a newcomer on £80,000 (or whatever the maths are).
Surely if you set lending at a fixed ratio to income that is below current levels (3 times household income say), by definition house prices cannot rise until incomes have risen to a level that allows people to borrow money again? And thereafter house prices only rise as income do?
The main reason that the bubble took off so badly this time was that there was a long term trend on lower interest rates, that allowed people to afford to borrow larger sums on the same income. Plus there was all sorts of relaxing of rules - 100+% LTV, interest only mortgages.
Given we are as low as interest rates can ever be now, we can't have another long term reduction in mortgage costs. If you can't afford a house now at 3 times your income, you never will as rates return to longer term averages. So now is the perfect time to introduce such rules.
Then houses can go back to being something you buy to live in, not as an investment.
S: "Surely if you set lending at a fixed ratio to income that is below current levels (3 times household income say), by definition house prices cannot rise until incomes have risen to a level that allows people to borrow money again?"
Lola is the expert on banking regulation, not me, but broadly speaking, yes.
"And thereafter house prices only rise as income do?"
But the more house prices rise, the more the econmy suffers. So if 3.0 x income is right for now, in five years, it would have to be 2.8 times, and in twenty years it would have to be 2.0 times and so on.
"So now is the perfect time to introduce such rules. Then houses can go back to being something you buy to live in, not as an investment."
Ahem. Houses (the bricks and mortar) are an investment, and a very good one at that. The point is that it should be nigh impossible to make an unearned cash profit from them, as well as living there rent-free.
Given the natural tendency of land values to rise faster than incomes, the only way to fix this is via the tax system, so let me rephrase that:
"So now is the perfect time to start replacing the entire tax system with a tax on land values. Then houses can go back to being something you buy to live in, not as an investment."
But surely if you fix LTV ratios, then land values can't rise faster than incomes? The only reason land values have risen so much relative to income is the relaxation of the rules that used to be in place 30+ years ago - ie conservative LTV, large deposits, often having to have been a saver with your building society (banks not being in the mortage business) for a number or years before being granted a mortgage, repayment mortgages only.
If house prices are fixed to incomes (which are fixed to the growth of GDP) then it matters little if everyone earns £10K and houses start at £30K, or we earn £25K and houses start at £75K or whatever? Housing will always take a fixed proportion of the national income. They will be a stable thing to own, growing in value as the economy does, but never a stellar investment that gains 25-30% in a single year (as has been the case recently).
And I would dispute the fact that the actual bricks and mortar are a good investment - they are a wasting asset. A house that is not maintained will lose value, not gain it. The bricks and mortar only rise in value as the replacement cost does. Its the rise in the land values that has caused the house price boom. (As was shown by all those property renovation shows on TV a few years ago - most of the people only made money because of the general rise in house prices while renovating their house, despite having improved the quality of the bricks and mortar). In fact I'd hazard a guess that you can build a house nearly as cheaply now as 10 years ago, with modern building methods (prefabricated houses etc).
S: "I would dispute the fact that the actual bricks and mortar are a good investment - they are a wasting asset."
Houses keep us warm and dry, they keep our valuables safe, they are as vital to existence as e.g. food, water. If people didn't spend money (invest in) food and water we would die very quickly, if we didn't invest in bricks and mortar we would freeze to death and have all our valuables nicked.
Cars are similarly a good investment - even though their value depreciates quite quickly, most people commute by car so they enable us to earn more than if we were restricted to jobs within walking distance.
The fact that nobody buys food, water, a car for long term unearned cash profits does not stop them from being a 'good investment', ditto bricks and mortar.
So please do not confuse 'good investment' with 'a state protected right to exclusive possession of land'.
And if house prices were to fall, then there'd have to be some sort of rebate for people who are in nequity, or else they end up paying twice.
If house (or land) prices were to fall, surely the tax owed on that property would naturally fall anyway through the normal workings of the LVT system? No need for rebates, or indeed any special intervention on the part of government for those in nequity.
Ed, I was referring to a specific marginal situation which might occur in areas of the UK where the house price-to-wage ratio is currently very high (Inner London, Cornwall) and where house prices might fall (the rest of the country would be unaffected).
What the Home-Owner-Ists want is for incumbents to be permanently at an advantage to newcomers (whether that's new as in 'new to the area' or 'younger people'), so the thing is a vast Ponzi scheme whereby each generation enslaves the next generation just a little bit more.
And the general idea behind the maths of LVT is that incumbents are no better or worse off than newcomers. Every generation ranks equally.
We just have to be careful about tipping the balance too far - I do not expect current generations to enslave themselves to future generations.
For example - there might be 'recent newcomers' who saddled themselves up to a mortgage at 2007 prices. If house prices in (Inner London, Cornwall) were to fall, this small minority would pay the same publicly collected tax as older incumbents or new newcomers, but they would be saddled with higher mortgage repayments (i.e. privately collected taxes) than either of the other groups.
So to prevent this middle group being caught between two stools, it only seems fair to give them a bit of a rebate (however calculated).
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And yes, under purist LVT, the selling price of land would fall gradually to +/- zero, but seeing as people are supposed to pay off their mortgages over twenty years, if land prices fell to +/- zero over twenty years, there would not be an issue with negative equity, would there?
this small minority would pay the same publicly collected tax as older incumbents or new newcomers, but they would be saddled with higher mortgage repayments (i.e. privately collected taxes) than either of the other groups.
This sounds a bit like the LVT equivalent of MIRAS. I would prefer to keep LVT simple. If someone, in hindsight, overpaid for an asset using borrowed money, too bad for them.
So to prevent this middle group being caught between two stools, it only seems fair to give them a bit of a rebate (however calculated).
A rebate for them means higher taxes for others. I don't consider that to be fair.
Sobers: Surely all this points to one thing I think we can all agree on - house prices are far too high. And we need to prevent them having any more bubbles in the future
Absolutely and absolutely, but in order to do that you need to understand why the bubble started in the first place.
Is it not more feasible (and politically acceptable) to introduce measures that should have been introduced in the last boom, but weren't?
You mean like LVT? :p I'll get me coat...
Such as caps on loan to value ratios, minimum equity amounts and a ban on any mortgage without a repayment mechanism?
Allied to a loosening of the planning restrictions these measures would prevent any future housing boom.
No, no they would not. The best you could do would be to reduce the amplitude of the boom and subsequent bust, but they would still occur. Why? Because booms don't happen because of a lack of any particular restriction on lending.
Booms happen because land speculation works if you're at the top of the pyramid.
As more people hop on, the boom continues. A lending limit simply gives a convenient 'cash-in' point for the original blowers, which precipitates the bust.
Worse, as the limits start to be reached, the political pressure to relax the limits would be immense as the alternative is to allow the bust to happen, and happen it must, on their watch. No chancellor would withstand it.
To fix the problem, you must go to the source, and that's what LVT does. Incidentally, nequity is the major reason I can think of why the best time economicially/socially to introduce LVT is at the trough, but you try introducing any kind of cure for the disease once the symptom (high house prices) is no longer present.
Ed: "If someone, in hindsight, overpaid for an asset using borrowed money, too bad for them."
Well yes and no...
Previous UK governments have lied and lied to people that 'jumping onto the property ladder' was a one-way ticket to wealth, and those who fell for it are not all bad people.
If somebody in (Cornwall, Inner London) took out a mortgage to buy their own home in the peak years of 2007, is dutifully paying off that mortgage over 20 years, and ends up in nequity as a result of a future change in UK government policy, then as a nation, we have to accept some sort of responsibility and patch up the survivors.
Conversely, if a few BTL landlords go to the wall, so be it.
F, I wish I had your way with words. What really hacks off e.g. Fred Harrison is that Gordon Brown mumbled on about this in the mid-1990s, but once he was in power, he abandoned all principles and rode the Home-Owner-Ist/deficit spending wave as long as it would carry him.
Problem is, the Lib-Cons are still trying to ride this wave, which is like watching somebody on a surf board wiggling wildly because the tail fin is stuck in the sand.
MW: Houses keep us warm and dry, they keep our valuables safe, they are as vital to existence as e.g. food, water. If people didn't spend money (invest in) food and water we would die very quickly, if we didn't invest in bricks and mortar we would freeze to death and have all our valuables nicked.
Cars are similarly a good investment - even though their value depreciates quite quickly, most people commute by car so they enable us to earn more than if we were restricted to jobs within walking distance.
I think you're strecthing the definition of investment here! For housing you are describing a necessity rather than an investment. We don't find shelter because it will make us more money, we do it because if we don't we die. It's blatantly an expense. Some ways of getting shelter work out more efficient than others, so in that *relative* sense there might be some investment going on, but it's a stretch to then say that housing itself is not an expense.
For cars, there are some possibilities. Either:
1) you live somewhere without public transport and no nearby jobs. Thus your choice is between unemployment or having a car. That is not investment, it is a cost of being employed (an expense).
2) you live somewhere without public transport and some nearby jobs. This is the closest situation that merits describing a car as an investment, as getting a car increases your opportunities, but you don't starve if you don't have one, strictly speaking you don't need it.
3) you live somewhere with public transport. The question now is how to get work, and typically the decision to get a car is about weighing the costs of ownership against the freedom/time gained by doing so. This can be considered an investment only if the freedom/time gained is used for production. The cost of the car is really the cost for doing whatever having the car enables you to do. The car *itself* is not the investment.
But again, transport is something that is at heart an expense. If we didn't have to physically relocate our meatbags to be employed or to perform activites, then we wouldn't, and we'd get more done. And we wouldn't use nearly so much oil.
A large chunk of our economy exists to service human expenses - dealing with the practical problems of doing the things we actually *want* to do. In societal terms they are overhead. Some are necessary (such as food, housing, transport), some are not (tax accountancy! :p). If we get rid of our unnecessary overhead (and fulfill the necessary more efficiently), then we can do far more interesting and useful things. Now *that's* investing.
Previous UK governments have lied and lied to people that 'jumping onto the property ladder' was a one-way ticket to wealth, and those who fell for it are not all bad people.
I agree - most of those who fell for it are not bad people, and I take no pleasure in their misfortune. However, they must take responsibility for their own choices.
If somebody in (Cornwall, Inner London) took out a mortgage to buy their own home in the peak years of 2007, is dutifully paying off that mortgage over 20 years, and ends up in nequity as a result of a future change in UK government policy, then as a nation, we have to accept some sort of responsibility and patch up the survivors.
What about the person (ok, a rare case) that bought the house in 2007 with savings rather than a mortgage (and lets assume these savings didn't come from previous property transactions, but rather from productive activity)? They are not in nequity, but do we help them to? Do we distinguish between the genuine _home_buyer from the speculator buying to flip?
If a house is to be considered a home to be lived in and enjoyed, then nequity and re-sale value are largely irrelevant, as with buying a car or a computer. In other words, the buyer should only purchase if they expect to get the full value (or almost the full value) of the purchase price through their use of the property over the time period they expect to live there.
On the other hand, if re-sale value is the buyer's primary concern, then it is an investment. I don't see why the taxpayer has to bail out people who make bad investments. Should we bail out someone who borrowed money in 2007 to buy bank shares?
@Fraggle: I disagree with your analysis of the housing market I'm afraid. The main reason we have had house price booms over the last 40 years (since 1970) is that each time there has been a relaxing of financial constraints in some way. Thus allowing people at all income levels to borrow more than before.
Houses are predominantly bought with borrowed money. Constrict the flow of borrowed money and house prices are similarly constricted. The fuel for a house price boom is the first time buyer, new meat for the housing market grist mill. At some point in the 1990s or early 2000s it became possible for a person in their early 20s to borrow 100% of the value of a house, and (due to interest only mortgages, and lower interest rates) be able to afford the repayments. That was the trigger for the mother of all booms. And all the while interest rates got lower and lower, and the banks got more and more free and easy with the money.
And then once everyone had made 'free' money from house prices, this got recycled back into the economy via equity withdrawal. Thus prolonging the boom even further.
If circa 2004/5 the Labour govt had done the right thing and taken away the punchbowl, this whole episode would have not ended in such tears, for us anyway. But Gordon had abolished boom and bust, so it was all OK.
The whole point of artificial financial constraints is it creates a) an upper limit to house prices and b) a reservoir of potential buyers should house prices dip. Thus you would get a much more stable market, with long term growth limited to that of incomes, and wild booms and busts constrained. Good for the economy too, as it is inevitably the housing market that causes the UK economy to go into overdrive, and then bust when it gets out of hand. Take that away and the UK economy might actually grow steadily for more than just the usual housing cycle.
I cannot in any circumstances accept that the way to control house prices is to control lending at a central level by overly simplistic methods like income multiples. As I said in my over-long rant the other day, it'll just create another but different set of winners and losers.
I think Sobers is right in talking about MEW as one of the factors which prolonged the housing bubble and the government's willingness to let it ride. Fraggle is right in identifying the ultimate uselessness of imposing lending caps - people will still game the system for personal advantage and there'll still be pleading money-renters wanting special treatment when the economy turns down.
I may be missing something here but, absent an overnight switch to LVT as MW outlines, there is something that can be done quickly, easily and inescapably to discourage people from treating their house as a piggy-bank, which in turn will break into the belief cycle which says "a house is an investment":
1. Impose an immediate CGT levy at 40% on any MEW for any purpose - or -
2. HMRC to be advised of any MEW during each tax year and the amount added to the borrower's income figure for the year. Tax then assessed for the year on the total earned income + MEW, and code adjusted.
3. Make it absolutely clear that there are no benefits or handouts for mortgage borrowers. These are personal contracts. You insure your risk, or not, as you see fit. If not, you take your chances.
F, I don't think I'm stretching the definition of 'investment'. Something that costs money today, but which gives benefits that last a long time into the future is an investment.
The people who are deliberately misusing the term 'investment' are the Hone-Owner-Ists, who define investments as 'something that goes up in value every year, and if it stops going up in value the government ought to bloody well do something about it'.
S, we (and the US) have been having house price booms for centuries, it's the 18 year cycle. PS, 2004/05 was far too late to do anything about it, things had started getting out of control by 2000 at the latest.
FT, your points 2 and 3 are splendid ideas, I don't think you need item 1.
Re point 3, it is amazing how many authoritarians say "The government should give tax breaks for saving or taking out a mortgage* because it encourages people to take responsibility for themselves so they don't fall back on welfare later on."
* Notwithstanding that saving and borrowing are complete opposites, subsidising one or the other is bad enough but subsidising both is madness.
Of course there is a very simple way of stopping all the house price booms (and MEWing at the same time) and that is to put CGT on private dwellings. Job done.
S, politically that's even less likely than LVT and secondly, it would not do the job at all. CGT is a bad tax as it discourages efficient allocation of resources (same as Stamp Duty).
If the rate were low, it would not have much effect (and raise very little money) and if the rate were high, then people would simply never, ever sell a house ever again - so today's houses would be owned in perpetuity by the same people and everybody else would rent (and if you are an owner-occupier who wants to move, you'd be renting out your old place and paying rent on your new one - which seems like a stupid way of running things).
I disagree, Mark. To levy CGT on the sale of private houses is the same as levying CGT on the sales of any other asset. Not to do so is a pure Home-ownerist tax break. You say it would politically never happen, but tax relief on mortgage interest payments (remember that?) was abolished with nary a whimper. There may be a case for putting up the CGT allowance if dwellings are included, but basically, this would be a non-issue if it wasn't for rampant property price inflation. As it is, the political pill could be sweetened, by adjusting the rate of taper relief.
B, but CGT is inherently a very bad tax. It was never meant to actually collect much tax, and it doesn't. It was only ever intended as an anti-avoidance provision so that people don't turn taxable income into tax-free capital gains.
So extending a bad tax to homeownership is stupid. LVT is the way forward, or if that's too radical for you, then we could collect more money from Council Tax and make it more proportional to land values.
Mark, please could you clarify whether LVT for residences would be calculated on the rentable value of the individual plots or from a flat rate for a postcode calculated on a £/sqYard basis.
I say this with the example of a block of houses which have long gardens. These houses may be extended to the maximum permissable under planning regs. But since the gardens are not available for further development (access would require demolition of some houses) you have the proportion of the plot available for development at high value but the rest of the plot (garden) is fairly low value.
Would it be right to apply a flat rate £/sq yard such that a plot with a large but undevelopable garden paid twice that of a half area plot that had permission to support the same size house?
DNase, no valuation system will be perfect - it's a trade off between spurious accuracy/expense and simplicity (remembering that the current owner's loss is a future owner's gain, because the price adjust down if LVT is perceived as 'too high' on a particular plot).
Let's assume tax is apportioned nationally according to current selling values, and that in some postcode sectors, all houses are similar, have similar width frontage (ten yards), but some have very short back gardens (say ten yards or less, total plot size 400 sq yards), some have medium gardens (twenty five yards) and some have very long back gardens (over fifty yards).
And let's say total plot sizes and average selling prices were
Short - 400 sq yds - £150,000
Medium - 550 sq yds - £160,000
Long - 800 sq yds - £180,000
Just like they do for Business Rates, you could (if you wished) have a formula that says, the first forty yards back from the road are taxed at 100%, and anything over that is taxed at 25%.
So the 'taxable area' becomes:
Short - 400 sq yards
Medium - 437.5 sq yards
London - 500 sq yards
We then end up with a tax bill that is roughly proportionate to the previously observed selling prices.
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