Remove exemption of first homes from capital gains tax

[Gittins Gal]

The exemption of first homes from capital gains tax is a bedrock of our damaging obsession with property

The Independent

Yep. You're onto a real winner there

And this is their editorial too. I seem to recall that when the Indy was launched back in the 80s it prided itself in having no loyalty to any particular party. That seems to have changed;

...We could build a great deal more than we do under a Labour government.

But, I digress. Didn't we used to have CGT on primary residences in the past? I'm sure my folks had a friend who used to do up houses, live in them (thus making it his primary residence) while the work was in progress and then sell on after 3 years at which point CGT exemption would kick in.

But I could be way off the mark here.

[Sysman]

The exemption of first homes from capital gains tax is a bedrock of our damaging obsession with property

The Independent

Yep. You're onto a real winner there

Well somebody has to tackle it sooner or later.

Didn't we used to have CGT on primary residences in the past? I'm sure my folks had a friend who used to do up houses, live in them (thus making it his primary residence) while the work was in progress and then sell on after 3 years at which point CGT exemption would kick in.

But I could be way off the mark here.

I vaguely remember proposals to increase the time to 2 years or more with the intention of stopping folks doing up a house per year. That was in the 70s when the top rate was lurking around 86%. The emphasis in those socialist days seemed to be a matter of making sure that nobody got rich instead of addressing property inflation, but of course I was looking at it from the perspective of "How do I grab some of the action?" rather than higher level notions of what was good for the housing market in general.

"An Englishman’s Home is his Pension Pot"

is the real problem. Broon exacerbated it by his raid on pensions.

[DimPrawn]

Other countries have tax on gains on primary residence. so it's not like we would be going out on a limb.

Most have indexation applied, so you get the amount they risen by inflation tax free, and pay tax on the gain beyond that (minus any large capital expenditure like extensions and renovations).

This means any "bubble" rise is a govt gain, any normal monetary rise is yours to keep.

[xoggoth]

Hang on a minute! The value of your house has risen hugely above inflation over many years but then so has the value of all the other houses so if you move you are no better off in real terms! You have made no real gain whatever and are supposed to pay tax on it? Are you supposed to downsize each time you move? Am I misunderstanding this or is it just typical socialist bollux?

One bit I do agree with:

There is even a curious reluctance to revive the hearts of our towns and cities. It should not be beyond the capacity of local planning authorities to turn the many shops currently going unused into flats

Our towns centres are filling up with charity shops (which pay no business rates as I understand it) plus crappy stuff like dodgy nail bars or Polish food shops that are of no interest to most of us. We need to go with changing times and technology. Internet collection points are a good use but otherwise why not turn empty places back into residences?

PS There is a ridiculous reluctance of local authorities to allow change of use. I know cases locally where pubs and shops make no business sense and have been struggling for years. The owners want to turn them into flats but the local authority just won't let them.

[eek]

Hang on a minute! The value of your house has risen hugely above inflation over many years but then so has the value of all the other houses so if you move you are no better off in real terms! You have made no real gain whatever and are supposed to pay tax on it? Are you supposed to downsize each time you move? Am I misunderstanding this or is it just typical socialist bollux?

One bit I do agree with:



Our towns centres are filling up with charity shops (which pay no business rates as I understand it) plus crappy stuff like dodgy nail bars or Polish food shops that are of no interest to most of us. We need to go with changing times and technology. Internet collection points are a good use but otherwise why not turn empty places back into residences?

PS There is a ridiculous reluctance of local authorities to allow change of use. I know cases locally where pubs and shops make no business sense and have been struggling for years. The owners want to turn them into flats but the local authority just won't let them.

There is a lot more money in business rates than council tax.

[VectraMan]

Hang on a minute! The value of your house has risen hugely above inflation over many years but then so has the value of all the other houses so if you move you are no better off in real terms! You have made no real gain whatever and are supposed to pay tax on it? Are you supposed to downsize each time you move? Am I misunderstanding this or is it just typical socialist bollux?

If the value of your house has gone up £100K through no effort of your own, then you're £100K better off than somebody who didn't buy one. And when you ultimately cash out, either you or your children will be £100K better off. So it's not true that you don't gain from house price inflation.

But is the theory of CGT on house prices that people will ask less because they don't want to pay the tax? That doesn't add up. Surely the effect would be to discourage people from moving, and that probably doesn't help anyone.

[Sysman]

Hang on a minute! The value of your house has risen hugely above inflation over many years but then so has the value of all the other houses so if you move you are no better off in real terms! You have made no real gain whatever and are supposed to pay tax on it? Are you supposed to downsize each time you move? Am I misunderstanding this or is it just typical socialist bollux?

Ah but surely the aim is to hold house prices at inflation.

You are right of course about not being able to see any real profit until you downsize. When everyone was wittering on about how much their house was worth in the late 80s I looked around at what mine was worth and what I wanted to move up to, and the gap had increased by several thousand. Just as well I didn't leap because 15% interest rates were just around the corner.

One bit I do agree with:

There is even a curious reluctance to revive the hearts of our towns and cities. It should not be beyond the capacity of local planning authorities to turn the many shops currently going unused into flats

Our towns centres are filling up with charity shops (which pay no business rates as I understand it) plus crappy stuff like dodgy nail bars or Polish food shops that are of no interest to most of us. We need to go with changing times and technology. Internet collection points are a good use but otherwise why not turn empty places back into residences?

Some of those Victorian office blocks would have made rather nice apartments. A mate who had seen that kind of conversion in the US back in the 70s had that idea, but it didn't really happen.

PS There is a ridiculous reluctance of local authorities to allow change of use. I know cases locally where pubs and shops make no business sense and have been struggling for years. The owners want to turn them into flats but the local authority just won't let them.

There's also VAT and tax for the property owners. It might have changed in recent years, but both developers and private folks could claim back the VAT incurred on a new home build, not on a conversion. The tax relief rules for commercial properties were (still are?) heavily geared towards new builds; naff all relief for renovations, loads available for new builds. This is probably what drove the wrecking of many a town centre's historic buildings back in the 60s and 70s.

Government meddling is the cause. It was probably fine to encourage new building via tax relief in the post war years, but it has passed its sell by date.

[Sysman]

There is a lot more money in business rates than council tax.

Not if the businesses aren't there.

[Doggy Styles]

If the value of your house has gone up £100K through no effort of your own, then you're £100K better off than somebody who didn't buy one. And when you ultimately cash out, either you or your children will be £100K better off. So it's not true that you don't gain from house price inflation.

But is the theory of CGT on house prices that people will ask less because they don't want to pay the tax? That doesn't add up. Surely the effect would be to discourage people from moving, and that probably doesn't help anyone.

But you are not better off are you, because most people sell in order to buy somewhere else.

I think what xog says is that to move from one house to an identical house somewhere else, it would cost you roughly 25% on the national rise in house prices, which is about threefold over the past 15 years.

An average 70,000 house in 1999 is worth 180,000 today, so for the poor sod who wants to move to work in another city it will cost £28,000 extra.

So the longer you've lived in a house, the worse off you'll be. I don't see how that is equitable at all.

[Zero Liability]

Other countries have tax on gains on primary residence. so it's not like we would be going out on a limb.

Most have indexation applied, so you get the amount they risen by inflation tax free, and pay tax on the gain beyond that (minus any large capital expenditure like extensions and renovations).

This means any "bubble" rise is a govt gain, any normal monetary rise is yours to keep.

One issue is whether the index (e.g. CPI) is reliably measuring price inflation, e.g. in food and energy. They certainly didn't do a good job of measuring rising housing prices by being predicated on the "rent-equivalent" standard, as rent prices can diminish even whilst house prices rise.

I dislike the notion of the CGT, even more than other taxes (maybe not as much as the income/"earnings" tax though), however the spiralling increase in property prices is not driven by unimpeded supply/demand mechanics but prior and on-going intervention, and I think the government is growing desperate to find a way to diffuse the renascent property bubble without endangering the "recovery" it has secured.