Righty-ho, as we now know from experience, any suggestion that we have more Council Tax bands (or move towards Domestic Rates or LVT), whether that's on a Tory or Labour-supporting website is met with horrified cries about Poor Widows In Mansions.
The Fat Bigot reckoned it was unprincipled of me to suggest that we simply exempt pensioners and make 'everybody else' pay a bit more, so how about this for a plan:
1. When you get sent the Council Tax/Domestic Rates/LVT form to confirm that you are indeed the registered owner, there'd be a box to tick saying "I am over pension age and I can't afford to/don't want to pay" and then there are a few empty lines in which you can enter the names and addresses of your adult children, or "None" if appropriate.
2. The council then splits the bill between equally between your children and in turn sends them a bill for their pro rata share of your bill*. It's then up to them whether to pay up or not. If not, the unpaid amounts are just registered as a charge against the land and are rolled up with interest. Clearly, these liabilities take precedence over any other liabilities, i.e. outstanding mortgage; if the mortgage company doesn't like the sound of this, it's up to them to sort things out in their own inimitable way.
3. If the ageing parents genuinely want to "keep wealth in the family" then it's up to them to trade down and their children will have every incentive to help them do so (exactly as they do now, if they want to gets their hands on 'their' inheritance ASAP). And if the ageing parents would rather stay where they are, or indeed if they have no adult children, then they can just tick the first box, enter "None" in the empty lines and that is the end of that.
4. Yes, actuarially, some people's rolled up debts plus interest will exceed the ultimate selling price of the house, but so what? The interest charge will just have to be calculated so that overall it's a break-even, and there is no advantage, ex ante to either a) paying up front or b) deferring. And yes, that means the government won't get hard-cash-money from some land until decades into the future, but the government also has debts (National Debt, public sector pensions) that do not have to be redeemed/paid until decades into the future, so it all still matches off in cash flow terms.
* If I were sent such a pro rata bill, I'd have to have a serious discussion with my siblings about whether we pay it or not. The chances are I'd say sod it, I'm not getting involved. My parents' house is of no interest to me, and if ends up all going in tax, then so what? I've managed without it so far, haven't I? Anybody who has staked his whole future on inheriting an [overvalued] house is beyond redemption.
Triple layer tinfoil
2 hours ago
14 comments:
Dunno if you read me recently, but St Kitts uses LVT and has zero personal income tax.
S, I looked at the lovely map and just skim read the rest. Yes, it only has LVT, but most of its government revenue appears to be fees collected from tax 'planners', so the LVT collected is minimal, which is fine for small countries but wouldn't work for large countries.
You'd need to change the law as regards priority of mortgages (to make point 2. work). Either an existing lender agrees to allow priority (unlikely) or any order against the house ranks behind the prior mortgage.
Either way there's a risk that other taxpayers or mortgage payers end up splitting the cost between them as you've altered the lenders' risk in granting mortgages.
There's a useful tax avoidance strategy in there... :-)
Too much admin in your proposal, and what if you don't want your house split equally between your children?
Also I see lots of angry 50yos finding out that they have been paying their mum's LVT for 20 years and then they find out the will gives everything to the RSPCA.
4. If the LVT debt exceeds the selling price, then nobody's going to pay it.. there needs to be some sort of minimum charge like a credit card bill, and you can add interest to the rest which is payable on sale of the house. Of course the buyer can pay the deferred LVT but the selling price would reduce accordingly. LVT deferral should only be permitted on someone's main residence.
FT, yes, I will need to tweak the law a bit, but this is my manifesto for government so I can invent any laws I like.
As a general rule, a mortgage can only be secured against whatever title 'the Crown' allows you to have, so the problem is not insurmountable. The number of pensioner households with mortgages is tiny, it was 2% last time I looked, perhaps it's a bit more. Either way, it puts a kybosh on the whole 'equity release mortgage' nonsense.
J, before a child pays the LVT, he is perfectly entitled to ensure that he is named in the will. Again, as a general rule, a will can be varied at any time but this does not apply to a deferred sale, i.e. the legal structure of the deal is, the child acquires the freehold, subject to a life tenancy in favour of the parent.
This is the same as protected tenancies from days of yore, only instead of the sitting tenant paying a few pounds a month rent and the freeholder being liable for major repairs, the sitting life tenant pays nothing and the freeholder is liable for the tax (it is in the freeholder's interests to keep the place in a reasonable state of repair anyway, that can be agreed separately).
As to 4, that's the point about setting the interest rate correctly to match the risk of the accumulated debt exceeding the value of the house or flat. I had a dispute with HMRC re these protected tenancies and checked with an auctioneer, as a rule of thumb, the value of a freehold with a sitting tenant is about half the value of the unencumbered freehold for a 65 year old life tenant (increasing to eighty per cent for a life tenant aged over 90, and so on).
So by and large, the tax will be collected, and if not, so what, we don't need to worry about this for twenty years anyway as an when the first shortfalls need to be recorded, i.e. if a seventy year old today has racked up twenty years of unpaid with interest and this exceeds eighty per cent of the selling price of the house in twenty years' time.
Having failed to produce anything like a persuasive case that LVT will burst the house-price bubble (despite that being the main argument you used to give for adopting LVT) you now take a different approach.
Let's set the bubble aside and assume there isn't one. On that hypothesis your proposal is to impose a capital tax on one form of savings.
Putting your money into a house (the value of which on this hypothesis includes no bubble element) rather than into the pocket of a landlord results in you owning a piece of real property after 25 or so years.
After the property is fully paid-for you have no on-going capital housing costs unlike those who have chosen to rent. OK, you have to maintain it but you had to do that while you were paying the mortgage, the net result is that you are considerably better off each month than you were when repaying the mortgage or that the renters next door are.
I don't see anything objectionable about people arranging their affairs in that way. In fact I think it is a very sensible arrangement because later in life earning capacity is often reduced and having lower overheads makes it much easier to cope with any downward turn on income. It also allows pensions to be lower and still provide enough for people to live on.
In effect the purchase of a house is a savings policy. It provides a lump sum that gradually increases as the mortgage is paid-down (let's not quibble about repayment against interest-only because any sensible interest-only plan includes a capital repayment vehicle). Once it is paid-off it provides a substantial monthly reduction in the cost of living.
None of this has anything to do with undeserved bubble-profits. If you want to attack these the obvious course is to impose capital gains tax / inheritance tax at 100% on profits on house sale over and above the nominal cash profit that would occur by reason of non-real property inflation.
What you propose is that the non-bubble savings accrued by buying real property should be subject to an annual capital tax. There is no such tax on any other form of savings because there is no justifiable principle behind such a tax, indeed in my view it would be considered completely unacceptable and counter-productive by so many that it would not be practical.
TFB.
You are doing your usual barrister's trick and lying, lying, lying. Worse than that, you haven't actually responded to the post, you just go off on a tangent. I have long given up trying to be reasonable and discuss this with BBs and Homeys like you who think that they profit from current rules and sod the next generation.
Instead of riling me, why don't you summarise all your non-points and write to the OECD and the IFS and all the other serious economists who support LVT and see what sort of response you get?
But just for the benefit of the crowd:
"Let's set the bubble aside and assume there isn't one."
That is a laughable premise. Land values bubble every 18 years or so and have been doing so since land ownership and banking were invented. But the rental value of land is much more stable, it rises (or falls) more slowly and that is what the tax would be on.
"Having failed to produce anything like a persuasive case that LVT will burst the house-price bubble (despite that being the main argument you used to give for adopting LVT)"
That is NOT the main argument I gave; land prices could be depressed downwards by a higher tax (this is after all John Redwood and a million other people's argument for NOT having land value tax, because they want prices to stay up).
"On that hypothesis your proposal is to impose a capital tax on one form of savings."
Lies. LVT is a tax on the rental value of land. The rental value of land is not "savings", it is something that arises because all the stuff which society does make some locations more desirable than others.
"In effect the purchase of a house is a savings policy."
Aha, this is a clever bit of propaganda put about by the Homeys: because there is a natural tendency of land values to rise if untaxed, that buying land and buildings is a splendid form of saving, therefore something which Responsible People do and all very considerate etc.
But this is childish one-sided economics; if one generations 'saves' by owning land which goes up in price, then that makes the next generation poorer.
Consider: everybody rushes out to buy buy-to-let investments to pay their pensions, thus preventing the next generation of tenants from saving via this magic money making machine 'the house price bubble'.
"What you propose is that the non-bubble savings accrued by buying real property should be subject to an annual capital tax."
Finish off with the repetition of a lie from above.
You know perfectly well that LVT is the tax on the annual rental value of land. It is not a capital tax, it is not on 'real property' and the rental value is pretty similar whether we are at the top or bottom of a price bubble.
Do you seriously claim that you are the great economist who has seen the flaws in the works of Adam Smith, Ricardo, Alfred Marshall, Henry George, half a dozen Nobel economics prizes (whose names escape me), the OECD, the IFS and so on?
Do you?
Having failed to produce anything like a persuasive case that LVT will burst the house-price bubble
How can there be a bubble when most of the land-value can't be mortgaged?
If you want to attack these the obvious course is to impose capital gains tax / inheritance tax at 100% on profits on house sale over and above the nominal cash profit that would occur by reason of non-real property inflation.
Houses are depreciating assets, what would you consider is the appropriate nominal cash profit that should occur on the sale of a depreciating asset? Should I expect a 3% return on my car when selling it after a few years?
Kj, ta for back up.
Buying a house will still be an excellent kind of retirement saving; as well as saving up cash in a pension fund to buy an annuity to pay you cash when you retire, you can buy a (much cheaper) house and live tax-free when you retire. With an annuity, you use up the amount saved in retirement; with a house, you use up the amount saved in retirement, the benefits are still there and much the same.
"On that hypothesis your proposal is to impose a capital tax on one form of savings. "
No it isn't. This premise is false, therefore it follows that all arguments that proceed from this premise are false.
"Putting your money into a house (the value of which on this hypothesis includes no bubble element) rather than into the pocket of a landlord results in you owning a piece of real property after 25 or so years. "
If there is no bubble element, and allowing for inflation, in 25 years time the house will be worth what you paid for it. Now at the moment interest rates are below inflation, but it hasn't always been so. If interest rates are above inflation, then you will have made a loss on the house in real terms over the 25 years. Plus, to keep the house at the value you paid for it, you would have had to maintain it for those 25 years. Not much of a savings plan, is it?
Also you fail to take into account the fact that the tenant could be putting into a real savings plan the money that the mortgagee is paying as repayments and getting interest on that money. Whilst the mortgagee ends up with a house, the tenant ends up with a lump sum. What's more the lump sum costs nothing to maintain.
Buying a house will still be an excellent kind of retirement saving
Sure, 100.000 worth of bricks and mortar is still security, and with proper maintenance, it shouldn't depreciate more than 1-2% annually. With a hypothetical 80% LVT-rate, there is still 20% of land value (on average), that alone can be used for five years of deferral on LVT, not counting brick and mortar.
as well as saving up cash in a pension fund to buy an annuity to pay you cash when you retire, you can buy a (much cheaper) house and live tax-free when you retire.
My grandfather did it the non-HO way, he traded down when he was widowed, exchanging the garden he couldn't tend to anyway for renting a low-maintenance flat, placed everything in a bank-account, and lived comfortably on a small guaranteed pension augmented with savings, even leaving a small inheritance to us when he died. As a thank you for not hanging on to his property, interest income was taxed so that interests barely kept afloat of inflation, and he was subject to a net worth tax, that he would have been able to avoid by owning a house. This is the backward nature of the tax system.
B, now you're talking! But that sort of thing is way above TFB's head (or at least, he pretends it is, it isn't really) but worth mentioning nonetheless.
Kj, we have a similar system in the UK to punish people like your Grandfather; cash savings are taxed and benefits are reduced if you have any significant cash; but your house is more or less tax free and benefits are not reduced if you live in a big house.
Buying a house isn't "saving" anyway, the whole Homey argument is bollocks, as they pretend that the only alternatives to buying a house is renting or squandering. Wrong, the comparison is as follows:
Consider two people who have £1,000 spare cash a month. Mr A buys the biggest house he can and pays £1,000 a month mortgage. Mr B buys a much smaller house and pays £500 a month mortgage and saves up £500 cash a month.
Seeing as Mr A is consuming twice as much land as Mr B (once any time period has passed, that land rental value which arose is gone and cannot be clawed back), and Mr B is demonstrably saving more then Mr A (he is building up cash to fund his retirement, period of unemployment etc), spending money on buying a house is simply not saving.
Everyone would be better off with LVT. Everyone.
Think about it. Even the Oligarch would be. Presently he needs his home (protecting his wife and kids) surrounded by a big wall and gate to stop people killing them.
Not much of a life.
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