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What are the arguments against?
1
In reply to Rob Exile Ward:
For the vast majority of us - zero
For those living in London however......
For the vast majority of us - zero
For those living in London however......
In reply to Rob Exile Ward:
Would it make moving house rather expensive and hence prevent people moving for jobs etc? Could you claim a loss if house prices fall?
Would it make moving house rather expensive and hence prevent people moving for jobs etc? Could you claim a loss if house prices fall?
In reply to Rob Exile Ward:
More incentive for tax evasion, and hence more money into the solicitors from both sides of the battle?
Or that it's taxing a symptom and not fixing the cause?
Build more houses and explain repeatedly to all and sundry that treating a constrained vital resource as an appreciating asset is bad for society and that houses will keep being built until it stops. The housing situation brings out my closet socialist... Mind you building more doesn't fix this issue where the constrain is absolute - land - and not artificial - planning permission on land - so your suggestion may help smooth out the peak prices from high density areas into the surroundings.
More incentive for tax evasion, and hence more money into the solicitors from both sides of the battle?
Or that it's taxing a symptom and not fixing the cause?
Build more houses and explain repeatedly to all and sundry that treating a constrained vital resource as an appreciating asset is bad for society and that houses will keep being built until it stops. The housing situation brings out my closet socialist... Mind you building more doesn't fix this issue where the constrain is absolute - land - and not artificial - planning permission on land - so your suggestion may help smooth out the peak prices from high density areas into the surroundings.
Post edited at 10:01
In reply to Rob Exile Ward:
Lots of floating voters in marginal constituencies are homeowners.
> What are the arguments against?
Lots of floating voters in marginal constituencies are homeowners.
In reply to Rob Exile Ward:
Or make the buy to let market much more atttactive? You buy a house and never sell to avoid tax, while renting somewhere else to live. Others do likewise.
Or make the buy to let market much more atttactive? You buy a house and never sell to avoid tax, while renting somewhere else to live. Others do likewise.
In reply to Rob Exile Ward:
Or we could just build more houses SHOCKER!!!
> Yes, but would it reduce house price inflation and so make houses more affordable?
Or we could just build more houses SHOCKER!!!
In reply to Rob Exile Ward:
I like the idea of neutral taxes - investment return on X is taxed in the same way as investment return on Y (unless you particularly want to encourage/discourage X or Y).
I like the idea of neutral taxes - investment return on X is taxed in the same way as investment return on Y (unless you particularly want to encourage/discourage X or Y).
In reply to Rob Exile Ward:
Let's get people with large portfolios and multiple houses to pay CGT in the first place, because currently, it's largely avoided.
> What are the arguments against?
Let's get people with large portfolios and multiple houses to pay CGT in the first place, because currently, it's largely avoided.
Post edited at 10:23
In reply to Rob Exile Ward:
If I sell my house, I'll be buying another. My house is worth more than when I bought it, but the one I'll be buying (on which I'll be paying stamp duty) has also gone up in price over the same time. It seems unfair to tax me on house price inflation.
> What are the arguments against?
If I sell my house, I'll be buying another. My house is worth more than when I bought it, but the one I'll be buying (on which I'll be paying stamp duty) has also gone up in price over the same time. It seems unfair to tax me on house price inflation.
In reply to Rob Exile Ward:
Over here we had 'dwelling profits tax' as an anti-speculation measure which was set to 100% unless you lived in the house for at least a year as your primary residence, in which case it was zero. It's currently suspended, I think it should be brought back with a longer timescale as the average house price is running at 15x average salary.
Over here we had 'dwelling profits tax' as an anti-speculation measure which was set to 100% unless you lived in the house for at least a year as your primary residence, in which case it was zero. It's currently suspended, I think it should be brought back with a longer timescale as the average house price is running at 15x average salary.
Post edited at 13:00
1
In reply to Rob Exile Ward:
The problem with preventing 1st time buyers from making a profit is that it has an effect further up the chain as second house prices are then held back. That is a good thing, except that anybody from anywhere can buy a house, and there are a lot of wealthy individuals kicking about in the world now. So, you end up with the situation that 'locals' cannot buy a 'second-time buy house', but a wealthy russian, american, baby boomer or investment fund can. This results in normal people being forced to rent and the rich getting richer. A restriction on people buying property for investment purposes instead of housing purposes would be much more useful in terms of keeping prices down.
The problem with preventing 1st time buyers from making a profit is that it has an effect further up the chain as second house prices are then held back. That is a good thing, except that anybody from anywhere can buy a house, and there are a lot of wealthy individuals kicking about in the world now. So, you end up with the situation that 'locals' cannot buy a 'second-time buy house', but a wealthy russian, american, baby boomer or investment fund can. This results in normal people being forced to rent and the rich getting richer. A restriction on people buying property for investment purposes instead of housing purposes would be much more useful in terms of keeping prices down.
In reply to Rob Exile Ward:
One argument. Tax should be simple and fair. This would be neither.
The simpler you make it the less fair, the fairer you make it the less simple.
The solution to the current problems are not more complex taxes. The solution is to collect was is owed and make tax simple, and therefore difficult to avoid.
3 taxes : earnings (income, cgt, corporation tax), luxuries (VAT), penalties (fuel, CO2, roads, etc, alcohol).
Inheritance and CGT on first home are unfair. They tax capital or assets that may be unrelated to growth of wealth.
One argument. Tax should be simple and fair. This would be neither.
The simpler you make it the less fair, the fairer you make it the less simple.
The solution to the current problems are not more complex taxes. The solution is to collect was is owed and make tax simple, and therefore difficult to avoid.
3 taxes : earnings (income, cgt, corporation tax), luxuries (VAT), penalties (fuel, CO2, roads, etc, alcohol).
Inheritance and CGT on first home are unfair. They tax capital or assets that may be unrelated to growth of wealth.
In reply to Toerag:
I've often thought that this is the way to go - prohibitive taxes on private individuals renting houses unless they do so through a regulated social housing agency that strictly limits profit and enforces a high minimum standard of landlord behaviour. I'd rate the tax in based on number of houses rented, with anyone having their first rental property taxed at the rate of their usual income tax, and then brining in the additional rental tax for further properties, with the tax rising as a fraction of the rent charged for each house. This helps people maintain a fluid situation with moves which is important - especially given the ever less permanent/lifetime nature of employment. Beyond that, if you want to capitalise on your position and the restrictive planning laws to further raise the value of your assets whilst pushing other people away from home buying and into renting, you can either do so through a controlled social housing scheme or suck up a prohibitive tax.
> A restriction on people buying property for investment purposes
I've often thought that this is the way to go - prohibitive taxes on private individuals renting houses unless they do so through a regulated social housing agency that strictly limits profit and enforces a high minimum standard of landlord behaviour. I'd rate the tax in based on number of houses rented, with anyone having their first rental property taxed at the rate of their usual income tax, and then brining in the additional rental tax for further properties, with the tax rising as a fraction of the rent charged for each house. This helps people maintain a fluid situation with moves which is important - especially given the ever less permanent/lifetime nature of employment. Beyond that, if you want to capitalise on your position and the restrictive planning laws to further raise the value of your assets whilst pushing other people away from home buying and into renting, you can either do so through a controlled social housing scheme or suck up a prohibitive tax.
Post edited at 13:37
In reply to Rob Exile Ward:
Since generally there is a housing shortage the tax would merely be added to the price of housing, increasing the price overall. This is the way taxation usually works unless you know of an example where taxing profit has led to a price reduction?
Since generally there is a housing shortage the tax would merely be added to the price of housing, increasing the price overall. This is the way taxation usually works unless you know of an example where taxing profit has led to a price reduction?
In reply to jimtitt:
An example in the opposite direction.
There is a fixed supply of farmland and agricultural subsidies (an "anti-tax") are reckoned to increase the value of farmland.
An example in the opposite direction.
There is a fixed supply of farmland and agricultural subsidies (an "anti-tax") are reckoned to increase the value of farmland.
In reply to elsewhere:
Anti-tax is a curious concept somehow. I though agricultural subsidies merely gave an enhanced or guaranteed profit making farmland more desirable as an investement.
When I work out my pricing and write invoices I don´t think, `gosh look at all that VAT and my tax bill for the year´ and reduce the price accordingly. Does anybody?
Anti-tax is a curious concept somehow. I though agricultural subsidies merely gave an enhanced or guaranteed profit making farmland more desirable as an investement.
When I work out my pricing and write invoices I don´t think, `gosh look at all that VAT and my tax bill for the year´ and reduce the price accordingly. Does anybody?
In reply to wintertree:
It seems to me that very few big landlords are stupid enough to take out any significant portion of their rents as income though, so I am not sure how such a system would work in practice.
> I've often thought that this is the way to go - prohibitive taxes on private individuals renting houses unless they do so through a regulated social housing agency that strictly limits profit and enfaces a high minimum standard of landlord behaviour. I'd rate the tax in based on number of houses rented, with anyone having their first rental property taxed at the rate of their usual income tax, and then brining in the additional rental tax for further properties, with the tax rising as a fraction of the rent charged for each house. This helps people maintain a fluid situation with moves which is important - especially given the ever less permanent/lifetime nature of employment. Beyond that, if you want to capitalise on your position and the restrictive planning laws to further raise the value of your assets whilst pushing other people away from home buying and into renting, you can either do so through a controlled social housing scheme or suck up a prohibitive tax.
It seems to me that very few big landlords are stupid enough to take out any significant portion of their rents as income though, so I am not sure how such a system would work in practice.
In reply to RomTheBear:
It's not clear to me what you mean, but I envisage the tax being applied as a fraction of the rent collected, with that fraction rising with each house, with the only exemption being if the house is let through a regulated social housing scheme. So, unless the landlord collects the rent in a very non-traditional sense it should work...
Or just ban renting privately other than through managed social housing schemes. Or preferably increase planning consent until the cost of a house is the same as the agricultural value of the land + cost of materials + cost of construction, not 3x-10x as much...
> It seems to me that very few big landlords are stupid enough to take out any significant portion of their rents as income though, so I am not sure how such a system would work in practice.
It's not clear to me what you mean, but I envisage the tax being applied as a fraction of the rent collected, with that fraction rising with each house, with the only exemption being if the house is let through a regulated social housing scheme. So, unless the landlord collects the rent in a very non-traditional sense it should work...
Or just ban renting privately other than through managed social housing schemes. Or preferably increase planning consent until the cost of a house is the same as the agricultural value of the land + cost of materials + cost of construction, not 3x-10x as much...
Post edited at 14:03
In reply to wintertree:
Ho ok I misunderstood, you are suggesting taxing every rent collected directly then. In which case the danger it that landlords will simply increases rents further to protect their returns, but if the proceeds of the tax goes towards building below market rate cheap housing for first time buyers then it could potentially work.
But then if you suggest that it will be only a matter of minutes before someone calls you an awful communist.
> It's not clear to me what you mean, but I envisage the tax being applied as a fraction of the rent collected, with that fraction rising with each house, with the only exemption being if the house is let through a regulated social housing scheme. So, unless the landlord collects the rent in a very non-traditional sense it should work...
Ho ok I misunderstood, you are suggesting taxing every rent collected directly then. In which case the danger it that landlords will simply increases rents further to protect their returns, but if the proceeds of the tax goes towards building below market rate cheap housing for first time buyers then it could potentially work.
But then if you suggest that it will be only a matter of minutes before someone calls you an awful communist.
Post edited at 14:26
In reply to RomTheBear
As I said earlier the housing situation brings out the closet socialist in me.
I don't think it needs money ploughing in to house building. If the price of land - with planning permission - was not dramatically overinflated by restricted supply, things would tumble down.
> But then if you suggest that it will be only a matter of minutes before someone calls you an awful communist.
As I said earlier the housing situation brings out the closet socialist in me.
I don't think it needs money ploughing in to house building. If the price of land - with planning permission - was not dramatically overinflated by restricted supply, things would tumble down.
In reply to Rob Exile Ward:
If your point is to look at ways of reducing house prices then I suggest that you look at the problem of supply and demand which introducing CGT will not address. The solution can only be to build more houses to meet the demands of population increases both due to UK births and immigration. Unless you plan to limit just how many children can be born the other options are to build a substantial number of new houses, either for sale or for rent or limit immigration or a combination of both. At the risk of exciting all of the UKC "rabid socialists" I do not believe that the UK would have had quite the same housing issues if immigration had been better controlled by Labour. To put it in context, it is estimated that since 2004, net immigration has averaged nearly 500k which if true would have required a new town the size of Birmingham (pop 1.074m in 2011) to be built every two years. With these numbers, introducing CGT will not incentivise anyone to build more properties and the Government does not seem to have the will or the money to do it. Having said all of this I do believe that a dwelling profits tax could possibly work if it is on a reducing basis over, say 5 years with 100% of profit taxed if property sold withing 12 months, reducing to zero if sold after 5 years. Now I am going to hide at the climbing wall whilst the "reds under the beds" get typing.
If your point is to look at ways of reducing house prices then I suggest that you look at the problem of supply and demand which introducing CGT will not address. The solution can only be to build more houses to meet the demands of population increases both due to UK births and immigration. Unless you plan to limit just how many children can be born the other options are to build a substantial number of new houses, either for sale or for rent or limit immigration or a combination of both. At the risk of exciting all of the UKC "rabid socialists" I do not believe that the UK would have had quite the same housing issues if immigration had been better controlled by Labour. To put it in context, it is estimated that since 2004, net immigration has averaged nearly 500k which if true would have required a new town the size of Birmingham (pop 1.074m in 2011) to be built every two years. With these numbers, introducing CGT will not incentivise anyone to build more properties and the Government does not seem to have the will or the money to do it. Having said all of this I do believe that a dwelling profits tax could possibly work if it is on a reducing basis over, say 5 years with 100% of profit taxed if property sold withing 12 months, reducing to zero if sold after 5 years. Now I am going to hide at the climbing wall whilst the "reds under the beds" get typing.
In reply to jimtitt:
That's exactly it, "more desirable as an investement" means the buyer of that farmland will be prepared to pay a higher price.
The VAT and tax bill don't reduce the price of your products but they do reduce the market price of the capial asset (ie the business itself) because the return to the investor (purchaser of the business) is reduced when they pay the taxes from the profits.
> Anti-tax is a curious concept somehow. I though agricultural subsidies merely gave an enhanced or guaranteed profit making farmland more desirable as an investement.
That's exactly it, "more desirable as an investement" means the buyer of that farmland will be prepared to pay a higher price.
> When I work out my pricing and write invoices I don´t think, `gosh look at all that VAT and my tax bill for the year´ and reduce the price accordingly. Does anybody?
The VAT and tax bill don't reduce the price of your products but they do reduce the market price of the capial asset (ie the business itself) because the return to the investor (purchaser of the business) is reduced when they pay the taxes from the profits.
In reply to Removed UserMike Rhodes:
My thinking is that it is almost ingrained in the UK that one way to save for the future is to invest in ever more expensive houses - the more expensive the house, the more the price rises in boom periods, and the more equity can be released when the time comes to downsize when the kids leave home etc. This must put an upwards pressure on house prices, surely?
A CGT that tapers according to length of residence and excludes genuine property improvements would surely take some pressure out of the market?
It's not going to happen though, anymore than my either idea of deducting care fees from deceased old people's estates, including their houses, which seems perfectly sensible to me.
My thinking is that it is almost ingrained in the UK that one way to save for the future is to invest in ever more expensive houses - the more expensive the house, the more the price rises in boom periods, and the more equity can be released when the time comes to downsize when the kids leave home etc. This must put an upwards pressure on house prices, surely?
A CGT that tapers according to length of residence and excludes genuine property improvements would surely take some pressure out of the market?
It's not going to happen though, anymore than my either idea of deducting care fees from deceased old people's estates, including their houses, which seems perfectly sensible to me.
In reply to Rob Exile Ward:
Indeed, that was the inheritance tax for you mate, but is has been pretty much entirely scrapped or made easily avoidable by successive governments over the past 30 years, especially labour.
> It's not going to happen though, anymore than my either idea of deducting care fees from deceased old people's estates, including their houses, which seems perfectly sensible to me.
Indeed, that was the inheritance tax for you mate, but is has been pretty much entirely scrapped or made easily avoidable by successive governments over the past 30 years, especially labour.
In reply to wintertree:
Well I am not so sure that supply of land to build on is the only problem, if you look at it historically, the only thing that has made housing prices go down significantly were wars or economic crashes.
Also if you look at countries in southern Europe which have an oversupply of housing, they are still faced with the same problem of the younger generation being unable to buy.
If there is an oversupply, developers are unlikely put their properties on he market unless they can get significant returns from it, they'd rather sit on it or rent it out.
Overall yes supply is very important but if the wages of most people don't go up so that they can eventually access propeety, there will just be more and more renters, paying an ever higher proportion of their wage as rent, and the prices still won't go down significantly, you'll just have fewer but more important players on the housing market.
> In reply to RomTheBear
> As I said earlier the housing situation brings out the closet socialist in me.
> I don't think it needs money ploughing in to house building. If the price of land - with planning permission - was not dramatically overinflated by restricted supply, things would tumble down.
Well I am not so sure that supply of land to build on is the only problem, if you look at it historically, the only thing that has made housing prices go down significantly were wars or economic crashes.
Also if you look at countries in southern Europe which have an oversupply of housing, they are still faced with the same problem of the younger generation being unable to buy.
If there is an oversupply, developers are unlikely put their properties on he market unless they can get significant returns from it, they'd rather sit on it or rent it out.
Overall yes supply is very important but if the wages of most people don't go up so that they can eventually access propeety, there will just be more and more renters, paying an ever higher proportion of their wage as rent, and the prices still won't go down significantly, you'll just have fewer but more important players on the housing market.
Post edited at 17:13
In reply to elsewhere:
The taxes increase the price of the product to the purchaser, for someone buying and selling a house the house itself is an investment product and if they wish to make an investment of X and Y profit of Y then the price will be X+Y+taxes on Y. The capital assets of a business are far removed from it´s value (or selling price) especially in my case!
Can´t say as i´ve ever experienced a tax (which takes money out from normal trade and gives it to a government to throw away) has ever had the effect the OP is looking for but there´s always a first time I suppose!
> That's exactly it, "more desirable as an investement" means the buyer of that farmland will be prepared to pay a higher price.
> The VAT and tax bill don't reduce the price of your products but they do reduce the market price of the capial asset (ie the business itself) because the return to the investor (purchaser of the business) is reduced when they pay the taxes from the profits.
The taxes increase the price of the product to the purchaser, for someone buying and selling a house the house itself is an investment product and if they wish to make an investment of X and Y profit of Y then the price will be X+Y+taxes on Y. The capital assets of a business are far removed from it´s value (or selling price) especially in my case!
Can´t say as i´ve ever experienced a tax (which takes money out from normal trade and gives it to a government to throw away) has ever had the effect the OP is looking for but there´s always a first time I suppose!
Post edited at 17:15
In reply to Removed UserMike Rhodes:
Where did you get your immigration estimates?
http://www.migrationwatchuk.org/latest-immigration-statistics
Where did you get your immigration estimates?
http://www.migrationwatchuk.org/latest-immigration-statistics
In reply to Rob Exile Ward:
Who's care fees? A proportion of the yearly NHS spend or a specific sum, leant like the student tuition loan? So poor people would have expensive care, knowing no cost, very rich people would pay for their own care, while elderly people with some assets could be mistreated by their family to shorten the drain on a small inheritance?
Your "solutions" only work in an ideal socialist world, where the people are all benign individuals. This is not reality.
> It's not going to happen though, anymore than my either idea of deducting care fees from deceased old people's estates, including their houses, which seems perfectly sensible to me.
Who's care fees? A proportion of the yearly NHS spend or a specific sum, leant like the student tuition loan? So poor people would have expensive care, knowing no cost, very rich people would pay for their own care, while elderly people with some assets could be mistreated by their family to shorten the drain on a small inheritance?
Your "solutions" only work in an ideal socialist world, where the people are all benign individuals. This is not reality.
In reply to RomTheBear:
It's a big one. A quarter acre of land with planning permission for a 3-bed detached house around here is likely to be £100,000. A quarter acre of agricultural land has a value of about £1000, so that racheting up of value by restricting the permission to build adds a cost of almost £100k to a house. Clearly that makes a big different to affordability.
Not unsurprising, whilst we have plenty of wars and crashes in the past, we have few examples of a planning policy driven by demand and not NIMBYism and a desire to preserve the artificially inflated values of the lucky people's assets. History does not explore every solution to a problem.
That is largely a different problem, and holding house long term empty on purpose is something else that brings out my closet socialist.
> Well I am not so sure that supply of land to build on is the only problem,
It's a big one. A quarter acre of land with planning permission for a 3-bed detached house around here is likely to be £100,000. A quarter acre of agricultural land has a value of about £1000, so that racheting up of value by restricting the permission to build adds a cost of almost £100k to a house. Clearly that makes a big different to affordability.
> if you look at it historically, the only thing that has made housing prices go down significantly were wars or economic crashes.
Not unsurprising, whilst we have plenty of wars and crashes in the past, we have few examples of a planning policy driven by demand and not NIMBYism and a desire to preserve the artificially inflated values of the lucky people's assets. History does not explore every solution to a problem.
> If there is an oversupply, developers are unlikely put their properties on he market unless they can get significant returns from it, they'd rather sit on it or rent it out.
That is largely a different problem, and holding house long term empty on purpose is something else that brings out my closet socialist.
In reply to jimtitt:
I disagree that taxes make an investor willing to pay a higher purchase price for a reduced return.
> The taxes increase the price of the product to the purchaser, for someone buying and selling a house the house itself is an investment product and if they wish to make an investment of X and Y profit of Y then the price will be X+Y+taxes on Y.
I disagree that taxes make an investor willing to pay a higher purchase price for a reduced return.
In reply to Rob Exile Ward:
As a person that bought a house in a nice part of London in the mid-nineties I've done eye wateringly well. Leaving that aside as I can't see the house coming back onto the market for at least 30 years I can't see what benefit there'd be for any section of the house buying population in charging CGT on house price rises.
IMHO house prices need to stabilise and allow earnings to catch up. Anything else would be de-stabilising.
I'd lump this CGT idea into the same bucket as the one for a ''Mansion Tax' its the politics of envy.
As a person that bought a house in a nice part of London in the mid-nineties I've done eye wateringly well. Leaving that aside as I can't see the house coming back onto the market for at least 30 years I can't see what benefit there'd be for any section of the house buying population in charging CGT on house price rises.
IMHO house prices need to stabilise and allow earnings to catch up. Anything else would be de-stabilising.
I'd lump this CGT idea into the same bucket as the one for a ''Mansion Tax' its the politics of envy.
In reply to wintertree:
Well yes but have you been in countries with lax planning laws ? I've been in Cyprus Greece and Spain in the past few years, the lax planning laws have been a disaster, the countrysides are littered with new development built in the middle of nowhere where the land was cheap, with no infrastructure, no businesses and no people, not only it's ugly and completely destroyed the countryside, but nobody can afford to buy the houses anyway so they just stay empty.
Maybe look at Spain, they have an oversupply of housing, lax planning laws, yet they have the same "Generation rent" problem as we have, and property prices in Spain are going up again. Younger people simply can't afford to buy so they spend a higher share of their income renting out which further makes them unable to enter the market.
Unfortunately it doesn't look like there is any natural force that will stop this dynamic any time soon, people earning will be squeezed in rents by fewer and fewer owners and we simply don't know where the limit is.
> It's a big one. A quarter acre of land with planning permission for a 3-bed detached house around here is likely to be £100,000. A quarter acre of agricultural land has a value of about £1000, so that racheting up of value by restricting the permission to build adds a cost of almost £100k to a house. Clearly that makes a big different to affordability.
Well yes but have you been in countries with lax planning laws ? I've been in Cyprus Greece and Spain in the past few years, the lax planning laws have been a disaster, the countrysides are littered with new development built in the middle of nowhere where the land was cheap, with no infrastructure, no businesses and no people, not only it's ugly and completely destroyed the countryside, but nobody can afford to buy the houses anyway so they just stay empty.
> Not unsurprising, whilst we have plenty of wars and crashes in the past, we have few examples of a planning policy driven by demand and not NIMBYism and a desire to preserve the artificially inflated values of the lucky people's assets. History does not explore every solution to a problem.
Maybe look at Spain, they have an oversupply of housing, lax planning laws, yet they have the same "Generation rent" problem as we have, and property prices in Spain are going up again. Younger people simply can't afford to buy so they spend a higher share of their income renting out which further makes them unable to enter the market.
Unfortunately it doesn't look like there is any natural force that will stop this dynamic any time soon, people earning will be squeezed in rents by fewer and fewer owners and we simply don't know where the limit is.
Post edited at 18:55
In reply to RomTheBear:
Having been in Spain for the past couple ofweeks I can tell you the problem with young people and getting on the housing ladder has nothing to do with price and EVERYTHING to do with employment. Youth unemplyment is currently running at 50% plus.
> Maybe look at Spain, they have an oversupply of housing, lax planning laws, yet they have the same "Generation rent" problem as we have
Having been in Spain for the past couple ofweeks I can tell you the problem with young people and getting on the housing ladder has nothing to do with price and EVERYTHING to do with employment. Youth unemplyment is currently running at 50% plus.
In reply to Philip:
Sorry, I mean care fees in a residential home - I thought that was understood. Governments of all persuasions come up with all sorts of cr*p solutions to paying for end of life care when the solution is staring us in the face.
If you think that people would deliberately not earn or save money during their working careers so it wouldn't be used to pay for their care at end of life, you must know some pretty weird people.
And no, I wouldn't care if I ended my days paying for my care out of my estate (which would otherwise have gone to my children) sitting next to someone who hadn't been able to save a brass farthing; so be it.
Sorry, I mean care fees in a residential home - I thought that was understood. Governments of all persuasions come up with all sorts of cr*p solutions to paying for end of life care when the solution is staring us in the face.
If you think that people would deliberately not earn or save money during their working careers so it wouldn't be used to pay for their care at end of life, you must know some pretty weird people.
And no, I wouldn't care if I ended my days paying for my care out of my estate (which would otherwise have gone to my children) sitting next to someone who hadn't been able to save a brass farthing; so be it.
In reply to Indy:
of course, it's what I am saying, it's not really the peoblems in the housing market which is causing young people to be unable to buy and forced to rent, it's the fact that they are either unemployed or on low wages and simply can't access that market in the first place, having a large oversupply doesn't seem to resolve the problem.
I think we can tinker as much as we want with the housing markets, and probably there is a lot of margin there to make the market function better, but in itself it's unlikely to allow more people to get on the housing ladder, only higher earnings can do that.
> Having been in Spain for the past couple ofweeks I can tell you the problem with young people and getting on the housing ladder has nothing to do with price and EVERYTHING to do with employment. Youth unemplyment is currently running at 50% plus.
of course, it's what I am saying, it's not really the peoblems in the housing market which is causing young people to be unable to buy and forced to rent, it's the fact that they are either unemployed or on low wages and simply can't access that market in the first place, having a large oversupply doesn't seem to resolve the problem.
I think we can tinker as much as we want with the housing markets, and probably there is a lot of margin there to make the market function better, but in itself it's unlikely to allow more people to get on the housing ladder, only higher earnings can do that.
Post edited at 19:52
In reply to Indy:
Only to the extent that a mansion tax is a form of arbitrary CGT "by the front door" on the gains in value of your home, yes, they are comparable. But what has envy got to do with the perfectly sensible notion that gains in the value of all assets (homes included) should be subject to tax in much the same way as tax is deducted from interest earned in a building society deposit account?
Wealth taxes in general, however, are appeals to envy. Why should an asset paid for out of taxed income, the gains in value of which are then taxable, be taxed a third time, for no reason at all?
> I'd lump this CGT idea into the same bucket as the one for a ''Mansion Tax' its the politics of envy.
Only to the extent that a mansion tax is a form of arbitrary CGT "by the front door" on the gains in value of your home, yes, they are comparable. But what has envy got to do with the perfectly sensible notion that gains in the value of all assets (homes included) should be subject to tax in much the same way as tax is deducted from interest earned in a building society deposit account?
Wealth taxes in general, however, are appeals to envy. Why should an asset paid for out of taxed income, the gains in value of which are then taxable, be taxed a third time, for no reason at all?
In reply to Rob Exile Ward:
So I buy a house, sell it not long after with little gain to be taxed. Then I buy another, wait, see a large gain, then sell with no CGT as not first house.
So I buy a house, sell it not long after with little gain to be taxed. Then I buy another, wait, see a large gain, then sell with no CGT as not first house.
In reply to BnB:
The idea behind wealth tax is to reduce extreme accumulation of wealth which threatens democracy and reduces mobility. Whether it works or not is open to debate though.
> Only to the extent that a mansion tax is a form of arbitrary CGT "by the front door" on the gains in value of your home, yes, they are comparable. But what has envy got to do with the perfectly sensible notion that gains in the value of all assets (homes included) should be subject to tax in much the same way as tax is deducted from interest earned in a building society deposit account?
> Wealth taxes in general, however, are appeals to envy. Why should an asset paid for out of taxed income, the gains in value of which are then taxable, be taxed a third time, for no reason at all?
The idea behind wealth tax is to reduce extreme accumulation of wealth which threatens democracy and reduces mobility. Whether it works or not is open to debate though.
Post edited at 22:23
In reply to RomTheBear:
Explain to me how the accumulation of "normal" wealth threatens democracy or mobility. We're not talking about extreme levels here. A sizeable proportion of Londoners could be hit by the mansion tax. Let's not kid ourselves that all that money is somehow tied up and out of circulation. What do the wealthy do to protect their hordes of cash from the ravages of inflation? Do they hide it under the bed? No, they invest it. Even if they do nothing more than put it in a building society account, it becomes available to lend to businesses for expansion, or to individuals to buy a house. The only thing wealth taxes are going to do, other than pander to populist envy politicking, is to persuade the rich to move their money to a less penal jurisdiction where it can stimulate someone else's economy.
I'm not blind to the fact that a lot of wealth in London is there for just that reason. Many Russians fear for their fortunes back home and have moved to London as a safe haven. I guess the gamble will be how far we can tax it before the harm outweighs the benefits.
Explain to me how the accumulation of "normal" wealth threatens democracy or mobility. We're not talking about extreme levels here. A sizeable proportion of Londoners could be hit by the mansion tax. Let's not kid ourselves that all that money is somehow tied up and out of circulation. What do the wealthy do to protect their hordes of cash from the ravages of inflation? Do they hide it under the bed? No, they invest it. Even if they do nothing more than put it in a building society account, it becomes available to lend to businesses for expansion, or to individuals to buy a house. The only thing wealth taxes are going to do, other than pander to populist envy politicking, is to persuade the rich to move their money to a less penal jurisdiction where it can stimulate someone else's economy.
I'm not blind to the fact that a lot of wealth in London is there for just that reason. Many Russians fear for their fortunes back home and have moved to London as a safe haven. I guess the gamble will be how far we can tax it before the harm outweighs the benefits.
Post edited at 22:25
In reply to BnB:
It's pretty obvious, the more wealth is controlled by a small group of people the more they can influence the political process
Well there is no doubt that the economy can function even with high concentration of wealth, I am not denying that.
The Victorian era was a good example of that, all the wealth was in the hands of a few families, productivity growth was quite high, we invented lots of stuff and so on. But for the rest of the population, it was crap, the was no upward mobility, the only way to get rich was to marry someone rich or being born in the right family.
If you push it too far though, it's probably not really good for griwth as it prevents new people from entering the economic game.
Only the shocks of the wars , the threat of communism, and the high taxation and high population growth that followed, levelled the playing field and resulted in a rising middle class.
Unfortunately at the pace at which this is going we'll be back to Victorian levels of inequality in 30 years, let's hope that it doesn't end like it ended at the start of the 20th century.
> Explain to me how accumulation of wealth threatens democracy or mobility.
It's pretty obvious, the more wealth is controlled by a small group of people the more they can influence the political process
> Please don't kid yourself that all that money is somehow tied up and out of circulation. What do the wealthy do to protect their hordes of cash from the ravages of inflation? Do they hide it under the bed? No, they invest it. Even if they do nothing more than put it in a building society account, it becomes available to lend to businesses for expansion, or to individuals to buy a house. The only thing wealth taxes are going to do, other than pander to populist envy politicking, is to persuade the rich to move their money to a less penal jurisdiction where it can stimulate someone else's economy.
Well there is no doubt that the economy can function even with high concentration of wealth, I am not denying that.
The Victorian era was a good example of that, all the wealth was in the hands of a few families, productivity growth was quite high, we invented lots of stuff and so on. But for the rest of the population, it was crap, the was no upward mobility, the only way to get rich was to marry someone rich or being born in the right family.
If you push it too far though, it's probably not really good for griwth as it prevents new people from entering the economic game.
Only the shocks of the wars , the threat of communism, and the high taxation and high population growth that followed, levelled the playing field and resulted in a rising middle class.
Unfortunately at the pace at which this is going we'll be back to Victorian levels of inequality in 30 years, let's hope that it doesn't end like it ended at the start of the 20th century.
Post edited at 22:40
In reply to BnB:
If it's invested in property then it is out of circulation, and where prices are quickly rising it's a way of growing your wealth without doing anything. It's not available to lend out to others and the opposite is true in many cases as the money is borrowed to some extent, with investors banking on being able to make enough money out of renting to cover the mortgage and then make a profit on the sale. Easy money if you've got it to invest, or if you're borrowing then perhaps not easy but still only available to people who can get hold of mortgages - so the richer you are the better. It's going to drive the difference between rich and poor.
People who want houses as houses aren't a problem that can be solved with this kind of legislation, but investors (like rich Russians) are a problem that maybe can be. Can't see how CGT on first time buyers is going to help, that's just going to make it harder for the poor - the people who don't own houses - to get into the market. Driving up CGT on property owned as an investment and making it payable on sale could work and shouldn't be too hard to administer.
> Explain to me how the accumulation of "normal" wealth threatens democracy or mobility. We're not talking about extreme levels here. A sizeable proportion of Londoners could be hit by the mansion tax. Let's not kid ourselves that all that money is somehow tied up and out of circulation. What do the wealthy do to protect their hordes of cash from the ravages of inflation? Do they hide it under the bed? No, they invest it. Even if they do nothing more than put it in a building society account, it becomes available to lend to businesses for expansion, or to individuals to buy a house. The only thing wealth taxes are going to do, other than pander to populist envy politicking, is to persuade the rich to move their money to a less penal jurisdiction where it can stimulate someone else's economy.
If it's invested in property then it is out of circulation, and where prices are quickly rising it's a way of growing your wealth without doing anything. It's not available to lend out to others and the opposite is true in many cases as the money is borrowed to some extent, with investors banking on being able to make enough money out of renting to cover the mortgage and then make a profit on the sale. Easy money if you've got it to invest, or if you're borrowing then perhaps not easy but still only available to people who can get hold of mortgages - so the richer you are the better. It's going to drive the difference between rich and poor.
People who want houses as houses aren't a problem that can be solved with this kind of legislation, but investors (like rich Russians) are a problem that maybe can be. Can't see how CGT on first time buyers is going to help, that's just going to make it harder for the poor - the people who don't own houses - to get into the market. Driving up CGT on property owned as an investment and making it payable on sale could work and shouldn't be too hard to administer.
Post edited at 00:18
In reply to Rob Exile Ward:
I'm a bit confused (no change there then). I can see that a second home or even a portfolio of houses might be construed as 'wealth' but how is a first home wealth? It's just where you live. Like many people who bought their house several years ago it is now allegedly worth more. Except it's not. I used to have one house, a place to live in and I've still only got one house to live in. The fact that some spiv says it's now worth more does not make me one penny wealthier. I have no extra money in my bank account, no stash of extra tenners under the mattress.
The only way I could realise this so-called 'wealth' would be to sell the house. But then I'd just have to buy somewhere else to live which would be just as expensive so I'd still have no extra money, In fact I'd be down on the deal because I'd have lost some in paying the spiv, the lawyers, stamp duty and now, if Rob gets his way, CGT. So rather than being notionally wealthier, I'd genuinely be poorer.
Luckily, living in the frozen north I'm nowhere near mansion tax levels and never will be but I feel sorry for people in London who may be about to get clattered for a tax on purely notional wealth which they cannot access. I suppose they could downsize. Of course that would increase demand for smaller, cheaper house, push up prices and make them even more unaffordable but , hey ho.
The only time your sole home become 'wealth' is when you emigrate, die, get carted off to the granny farm or downsize. Until then it's just pixie money, a complete illusion, and anyone who thinks they are richer because house prices have gone up in value is a moron. Not that there's any shortage of those.
I'm a bit confused (no change there then). I can see that a second home or even a portfolio of houses might be construed as 'wealth' but how is a first home wealth? It's just where you live. Like many people who bought their house several years ago it is now allegedly worth more. Except it's not. I used to have one house, a place to live in and I've still only got one house to live in. The fact that some spiv says it's now worth more does not make me one penny wealthier. I have no extra money in my bank account, no stash of extra tenners under the mattress.
The only way I could realise this so-called 'wealth' would be to sell the house. But then I'd just have to buy somewhere else to live which would be just as expensive so I'd still have no extra money, In fact I'd be down on the deal because I'd have lost some in paying the spiv, the lawyers, stamp duty and now, if Rob gets his way, CGT. So rather than being notionally wealthier, I'd genuinely be poorer.
Luckily, living in the frozen north I'm nowhere near mansion tax levels and never will be but I feel sorry for people in London who may be about to get clattered for a tax on purely notional wealth which they cannot access. I suppose they could downsize. Of course that would increase demand for smaller, cheaper house, push up prices and make them even more unaffordable but , hey ho.
The only time your sole home become 'wealth' is when you emigrate, die, get carted off to the granny farm or downsize. Until then it's just pixie money, a complete illusion, and anyone who thinks they are richer because house prices have gone up in value is a moron. Not that there's any shortage of those.
In reply to RomTheBear:
Not sure I agree with that insofar as a young person in Spain with a suitiable job would have access to reasonably priced housing for his needs ie starting at a 1 bed flat and moving through to a family house with garden as those needs increased.
in London and the south the problem is you'd need to be earning £60k+ a year with a £20k deposit to be able to afford that first time buyer 1 bed flat.
I simply can't understand why the market hasn't seized up with those prices but it hasn't if anything prices are still rising.
Not sure I agree with that insofar as a young person in Spain with a suitiable job would have access to reasonably priced housing for his needs ie starting at a 1 bed flat and moving through to a family house with garden as those needs increased.
in London and the south the problem is you'd need to be earning £60k+ a year with a £20k deposit to be able to afford that first time buyer 1 bed flat.
I simply can't understand why the market hasn't seized up with those prices but it hasn't if anything prices are still rising.
In reply to Wiley Coyote:
It wasn't a particularly thought through suggestion (no change there then, either!) I've just been musing on the principle that one of the drivers behind house price inflation is ... house price inflation. It is economically rational to get on the ladder, and then to spend as much of your money as possible on ever more expensive houses because as they rise in price, the more expensive houses will rise in price. And then you have an asset which you can realise in cash when you choose to downsize.
Anyone in the current climate who say that 'a house is just for living in' should offer to give their capital gain away when they move!
It wasn't a particularly thought through suggestion (no change there then, either!) I've just been musing on the principle that one of the drivers behind house price inflation is ... house price inflation. It is economically rational to get on the ladder, and then to spend as much of your money as possible on ever more expensive houses because as they rise in price, the more expensive houses will rise in price. And then you have an asset which you can realise in cash when you choose to downsize.
Anyone in the current climate who say that 'a house is just for living in' should offer to give their capital gain away when they move!
In reply to thomasadixon:
If the wealth only results from an inflation busting increase in the value of your property, that extra "money" isn't tied up in the property. It's simply a notional increase in the value of the original price you paid. The money that is tied up is just your original investment. Except that isn't true either is it, because, unless you are a Russian oligarch, you borrowed all but a small (sub 10%?) proportion of the house value to purchase the asset in the first place. And the bank that lent you the money is using the house as security to borrow from their wholesale lender, who might well be in the USA or Switzerland, or a Russian oligarch
But when you eventually sell your property to downsize, the proceeds will come into your hands from another source, and this is the moment when you might suck money out of the system (if you have a safe bed to hide it under). However, as long as you use it to buy real stuff (elderly care, whatever) or reinvest it, it goes straight back into the economy. And at this point, as the OP asks, why is it unreasonable that you should pay tax on your unearned income?
If the wealth only results from an inflation busting increase in the value of your property, that extra "money" isn't tied up in the property. It's simply a notional increase in the value of the original price you paid. The money that is tied up is just your original investment. Except that isn't true either is it, because, unless you are a Russian oligarch, you borrowed all but a small (sub 10%?) proportion of the house value to purchase the asset in the first place. And the bank that lent you the money is using the house as security to borrow from their wholesale lender, who might well be in the USA or Switzerland, or a Russian oligarch
But when you eventually sell your property to downsize, the proceeds will come into your hands from another source, and this is the moment when you might suck money out of the system (if you have a safe bed to hide it under). However, as long as you use it to buy real stuff (elderly care, whatever) or reinvest it, it goes straight back into the economy. And at this point, as the OP asks, why is it unreasonable that you should pay tax on your unearned income?
In reply to Rob Exile Ward:
That's the bit i don't understand. Where in reality is the 'gain'. Certainly with luck when you sell you will get a higher amount than when you bought but since they still need somewhere to live most people will need to buy another house. That house, just like the one they sold will have gone up in price and will hoover up all their increase. So where's the gain?
Thinking on a step, since owners would lose out every time they sell (estate agents, lawyers, stamp duty, moving co, and now CGT) it would be silly to move unless absolutely necessary. I would have thought that would lead to a very constipated housing market, making life very difficult for those who need to move.
> Anyone in the current climate who say that 'a house is just for living in' should offer to give their capital gain away when they move!
That's the bit i don't understand. Where in reality is the 'gain'. Certainly with luck when you sell you will get a higher amount than when you bought but since they still need somewhere to live most people will need to buy another house. That house, just like the one they sold will have gone up in price and will hoover up all their increase. So where's the gain?
Thinking on a step, since owners would lose out every time they sell (estate agents, lawyers, stamp duty, moving co, and now CGT) it would be silly to move unless absolutely necessary. I would have thought that would lead to a very constipated housing market, making life very difficult for those who need to move.
In reply to BnB:
I bought a house in 1989 (at the top of the market, because "houses always go up in price") and sold it 6 years later for £17000 less than I paid for it. Would I get a rebate on my income tax?
I bought a house in 1989 (at the top of the market, because "houses always go up in price") and sold it 6 years later for £17000 less than I paid for it. Would I get a rebate on my income tax?
In reply to 999thAndy:
Not on your income tax because the gain is chargeable to capital gains, not income, but yes, you'd have a loss which would be capable of offset against any future gains, so that in the end, providing you did eventually have a taxable gain, you would only be taxed on the net profit (ie minus the loss made perviously). That is how CGT works already. There would be no need to change legislation.
However, I can't honestly see how you could apply CGT to the housing market, because, as others have pointed out, it becomes a disincentive to sell, not to mention making a house of comparable value suddenly unaffordable, as you would paying in tax some of the profit from your original house, reducing your principal. This would then suppress house prices and lead to the unintended consequence of a drop in consumer spending and an economic slump, not to mention a failure to collect the projected tax revenues from house price increases that have failed to materialise. As ever, it's all horribly complicated.
Not on your income tax because the gain is chargeable to capital gains, not income, but yes, you'd have a loss which would be capable of offset against any future gains, so that in the end, providing you did eventually have a taxable gain, you would only be taxed on the net profit (ie minus the loss made perviously). That is how CGT works already. There would be no need to change legislation.
However, I can't honestly see how you could apply CGT to the housing market, because, as others have pointed out, it becomes a disincentive to sell, not to mention making a house of comparable value suddenly unaffordable, as you would paying in tax some of the profit from your original house, reducing your principal. This would then suppress house prices and lead to the unintended consequence of a drop in consumer spending and an economic slump, not to mention a failure to collect the projected tax revenues from house price increases that have failed to materialise. As ever, it's all horribly complicated.
In reply to Wiley Coyote:
Well exactly in general I think we need to recognise that the primary home is a special class of asset because it's often more of a need than purely an investment.
The problem is that the lines have been a bit blurred, especially in London area, where some "primary" homes in the range of several million pounds are really more money making machine than anything else.
> That's the bit i don't understand. Where in reality is the 'gain'. Certainly with luck when you sell you will get a higher amount than when you bought but since they still need somewhere to live most people will need to buy another house. That house, just like the one they sold will have gone up in price and will hoover up all their increase. So where's the gain?
> Thinking on a step, since owners would lose out every time they sell (estate agents, lawyers, stamp duty, moving co, and now CGT) it would be silly to move unless absolutely necessary. I would have thought that would lead to a very constipated housing market, making life very difficult for those who need to move.
Well exactly in general I think we need to recognise that the primary home is a special class of asset because it's often more of a need than purely an investment.
The problem is that the lines have been a bit blurred, especially in London area, where some "primary" homes in the range of several million pounds are really more money making machine than anything else.
In reply to BnB:
The original investment is what you said above wasn't tied up - and I think you'd be surprised at how many people there are able to buy outright or borrow small amounts. The money lent to these investors is money tied up as well, the banks could be lending it elsewhere instead - but of course it's best for them to lend to wealthy individuals to buy property. Little risk and easy money for the banks as well as the rich. Why risk your money lending it to business when you can invest in property instead?
As an extra benefit the increase in demand drives up prices, increasing gain short term. Long term it's a bubble that might pop, but you're an investor and can sell relatively quickly, it's home owners that end up in negative equity that are harmed.
Now you're talking about people owning property as a home. Not the same issue. For them it's largely meaningless as Wiley Coyote says.
> (In reply to thomasadixon)
>
> If the wealth only results from an inflation busting increase in the value of your property, that extra "money" isn't tied up in the property. It's simply a notional increase in the value of the original price you paid. The money that is tied up is just your original investment. Except that isn't true either is it, because, unless you are a Russian oligarch, you borrowed all but a small (sub 10%?) proportion of the house value to purchase the asset in the first place. And the bank that lent you the money is using the house as security to borrow from their wholesale lender, who might well be in the USA or Switzerland, or a Russian oligarch
>
> If the wealth only results from an inflation busting increase in the value of your property, that extra "money" isn't tied up in the property. It's simply a notional increase in the value of the original price you paid. The money that is tied up is just your original investment. Except that isn't true either is it, because, unless you are a Russian oligarch, you borrowed all but a small (sub 10%?) proportion of the house value to purchase the asset in the first place. And the bank that lent you the money is using the house as security to borrow from their wholesale lender, who might well be in the USA or Switzerland, or a Russian oligarch
The original investment is what you said above wasn't tied up - and I think you'd be surprised at how many people there are able to buy outright or borrow small amounts. The money lent to these investors is money tied up as well, the banks could be lending it elsewhere instead - but of course it's best for them to lend to wealthy individuals to buy property. Little risk and easy money for the banks as well as the rich. Why risk your money lending it to business when you can invest in property instead?
As an extra benefit the increase in demand drives up prices, increasing gain short term. Long term it's a bubble that might pop, but you're an investor and can sell relatively quickly, it's home owners that end up in negative equity that are harmed.
> But when you eventually sell your property to downsize, the proceeds will come into your hands from another source, and this is the moment when you might suck money out of the system (if you have a safe bed to hide it under). However, as long as you use it to buy real stuff (elderly care, whatever) or reinvest it, it goes straight back into the economy. And at this point, as the OP asks, why is it unreasonable that you should pay tax on your unearned income?
Now you're talking about people owning property as a home. Not the same issue. For them it's largely meaningless as Wiley Coyote says.
In reply to Rob Exile Ward:
Lets say you buy a house in 1993 for £110K and in 2013 you need to move because of family circumstances. You sell for £280 with a notional profit if £170K , in the meantime you have paid £100K in interest and the cost of an equivalent house in the area you are moving to is £320K.
If the £170K is taxed at 40% then I struggle to see the equity in the system.
If you were to pursue this argument then the logical extension of it is to introduce an asset tax , taxing everyone on the increase in their net worth (which implies tax on inflation and double tax on income).
I presume you are referring to the mansion tax, it would be much better to tax the income of the rich properly rather than try and claw back a miniscule proportion through a mansion tax.
Lets say you buy a house in 1993 for £110K and in 2013 you need to move because of family circumstances. You sell for £280 with a notional profit if £170K , in the meantime you have paid £100K in interest and the cost of an equivalent house in the area you are moving to is £320K.
If the £170K is taxed at 40% then I struggle to see the equity in the system.
If you were to pursue this argument then the logical extension of it is to introduce an asset tax , taxing everyone on the increase in their net worth (which implies tax on inflation and double tax on income).
I presume you are referring to the mansion tax, it would be much better to tax the income of the rich properly rather than try and claw back a miniscule proportion through a mansion tax.
In reply to Wiley Coyote:
Are you sure ? I can think of plenty of ways you could use that to become very rich, and also paying ZERO tax.
Let's say Mr McScrooge has a 4 million pounds mansion in London, he takes a 4 million pounds loan, using the house as a collateral, repayable at the end of year one, with 4% interest, which is a total repayment of £4,160,000.
But between year one and and year two value of his house has increased by ten percent, he can therefore now take another loan of £4,400,000, repay the first loan, and keep the £240,000 difference in his pocket.
Also he has paid ZERO income tax on this 240K because this is from a loan.
Mr McScrooge can keep doing this every year and get a 6 figure income every year without actually doing anything, (and never paying any tax) as long as interest rates are lower than the year on year increase in value of his property.
> The only time your sole home become 'wealth' is when you emigrate, die, get carted off to the granny farm or downsize. Until then it's just pixie money, a complete illusion, and anyone who thinks they are richer because house prices have gone up in value is a moron. Not that there's any shortage of those.
Are you sure ? I can think of plenty of ways you could use that to become very rich, and also paying ZERO tax.
Let's say Mr McScrooge has a 4 million pounds mansion in London, he takes a 4 million pounds loan, using the house as a collateral, repayable at the end of year one, with 4% interest, which is a total repayment of £4,160,000.
But between year one and and year two value of his house has increased by ten percent, he can therefore now take another loan of £4,400,000, repay the first loan, and keep the £240,000 difference in his pocket.
Also he has paid ZERO income tax on this 240K because this is from a loan.
Mr McScrooge can keep doing this every year and get a 6 figure income every year without actually doing anything, (and never paying any tax) as long as interest rates are lower than the year on year increase in value of his property.
Post edited at 11:03
In reply to RomTheBear:
I'll check but I don't thnk any of my friends or neighbours are onto this wheeze. Of course, given that we all know the value of our houses dropped for a few years after the crash (approx 10pc in this street and probably still not quite back to what I paid eight years ago) they may worry about being able to make the repayment and not be overly keen to take the gamble with the only roof they have. I suspect it works better for Mr McScrooge and Mr Scroogski in Mayfair and Notting Hill than for Joe Bloggs in sunny downtown Skipton
I'll check but I don't thnk any of my friends or neighbours are onto this wheeze. Of course, given that we all know the value of our houses dropped for a few years after the crash (approx 10pc in this street and probably still not quite back to what I paid eight years ago) they may worry about being able to make the repayment and not be overly keen to take the gamble with the only roof they have. I suspect it works better for Mr McScrooge and Mr Scroogski in Mayfair and Notting Hill than for Joe Bloggs in sunny downtown Skipton
In reply to RomTheBear:
Could you just explain how he can get a loan for £4,400,000 whilst he owes £4,160,000 on a house?
Maybe if people really are doing this your ire should be directed at the banks
Could you just explain how he can get a loan for £4,400,000 whilst he owes £4,160,000 on a house?
Maybe if people really are doing this your ire should be directed at the banks
In reply to Wiley Coyote:
Well exactly, but that's the problem here, Mr McScrooge with a 4 million pound mansion can make a 6 figure income and pay zero tax without actually ever doing any work, whilst Joe Bloggs has to pay 40% income tax on his hard labour and with his modest home certainly can't play McScrooge game.
That's why I think it's only fair to find a way to tax MrScrooge who currently pays nothing, mansion tax is one way, then it's all a matter of where do you put the threshold.
> I'll check but I don't thnk any of my friends or neighbours are onto this wheeze. Of course, given that we all know the value of our houses dropped for a few years after the crash (approx 10pc in this street and probably still not quite back to what I paid eight years ago) they may worry about being able to make the repayment and not be overly keen to take the gamble with the only roof they have. I suspect it works better for Mr McScrooge and Mr Scroogski in Mayfair and Notting Hill than for Joe Bloggs in sunny downtown Skipton
Well exactly, but that's the problem here, Mr McScrooge with a 4 million pound mansion can make a 6 figure income and pay zero tax without actually ever doing any work, whilst Joe Bloggs has to pay 40% income tax on his hard labour and with his modest home certainly can't play McScrooge game.
That's why I think it's only fair to find a way to tax MrScrooge who currently pays nothing, mansion tax is one way, then it's all a matter of where do you put the threshold.
In reply to 999thAndy:
Because his house value has increased by 10% so it's now worth £4,400,000.
£4,160,000 is what he had to repay on year one, hence the 240k difference that he "extracted" by exploiting the difference between the low borrowing rate and the rise in value of his property.
Well it's not really the banks per se, it's the system, as long as borrowing rates are lower than the rise in value of your property you can do that.
> Could you just explain how he can get a loan for £4,400,000 whilst he owes £4,160,000 on a house?
Because his house value has increased by 10% so it's now worth £4,400,000.
£4,160,000 is what he had to repay on year one, hence the 240k difference that he "extracted" by exploiting the difference between the low borrowing rate and the rise in value of his property.
> Maybe if people really are doing this your ire should be directed at the banks
Well it's not really the banks per se, it's the system, as long as borrowing rates are lower than the rise in value of your property you can do that.
Post edited at 11:24
In reply to RomTheBear:
Forgive me if I'm being dense here, but if I go to the bank X and ask for £4.4M I'd expect to fill in a form, asking what debts I already have. Pretty near the top of my list would be the £4.14M already owed to bank Y. At that point, when the manager has stopped laughing and dried his face, I'd expect to be shown the door.
Forgive me if I'm being dense here, but if I go to the bank X and ask for £4.4M I'd expect to fill in a form, asking what debts I already have. Pretty near the top of my list would be the £4.14M already owed to bank Y. At that point, when the manager has stopped laughing and dried his face, I'd expect to be shown the door.
In reply to RomTheBear:
Who is doing this imaginary thing that needs you to take out loans to pay off loans and only works as long as you can accurately forecast house prices and interest rates? I want names.
Who is doing this imaginary thing that needs you to take out loans to pay off loans and only works as long as you can accurately forecast house prices and interest rates? I want names.
In reply to 999thAndy:
Why would he laugh at his face ? he might owe 4.16M to bank Y, but he still has the capital he borrowed from bank Y, which is 4M, plus his house is now worth 4.4M, so bank X knows that Mr Scrounge has a positive balance sheet and is solvent.
> Forgive me if I'm being dense here, but if I go to the bank X and ask for £4.4M I'd expect to fill in a form, asking what debts I already have. Pretty near the top of my list would be the £4.14M already owed to bank Y. At that point, when the manager has stopped laughing and dried his face, I'd expect to be shown the door.
Why would he laugh at his face ? he might owe 4.16M to bank Y, but he still has the capital he borrowed from bank Y, which is 4M, plus his house is now worth 4.4M, so bank X knows that Mr Scrounge has a positive balance sheet and is solvent.
Post edited at 11:50
In reply to 999thAndy:
People can refinance mortgages and loans, so if the bank was certain that the new loan would pay off the old one, it's not necessarily a problem.
I would laugh in the face of Rom's hypothetical millionaire when another 2008 happens however, and they've got to refinance a £4M loan and the value of their house has dropped to £2M. The consequences of this are not pretty, and everyone looses. Except whoever gets to buy the repossession at a knock down price.
> At that point, when the manager has stopped laughing and dried his face, I'd expect to be shown the door.
People can refinance mortgages and loans, so if the bank was certain that the new loan would pay off the old one, it's not necessarily a problem.
I would laugh in the face of Rom's hypothetical millionaire when another 2008 happens however, and they've got to refinance a £4M loan and the value of their house has dropped to £2M. The consequences of this are not pretty, and everyone looses. Except whoever gets to buy the repossession at a knock down price.
In reply to wintertree:
And this is why the excitement about taxing "mansions" will go away in a few years when they've shrunk back down to townhouses.
> I would laugh in the face of Rom's hypothetical millionaire when another 2008 happens however, and they've got to refinance a £4M loan and the value of their house has dropped to £2M. The consequences of this are not pretty, and everyone looses. Except whoever gets to buy the repossession at a knock down price.
And this is why the excitement about taxing "mansions" will go away in a few years when they've shrunk back down to townhouses.
In reply to wintertree:
he doesn't have to refinance the 4M loan given that he still has the capital from it, the most he can lose playing this game is the interest on the loan.
Unless he invested his capital in another mansion to do more of this, in which case, yes, him and his bank are shafted, but it's ok, MrScrooge will still have made huge amounts of money during that time, paying no tax, and the bank will get bailed out by the taxpayer. All is fine.
> People can refinance mortgages and loans, so if the bank was certain that the new loan would pay off the old one, it's not necessarily a problem.
> I would laugh in the face of Rom's hypothetical millionaire when another 2008 happens however, and they've got to refinance a £4M loan and the value of their house has dropped to £2M. The consequences of this are not pretty, and everyone looses. Except whoever gets to buy the repossession at a knock down price.
he doesn't have to refinance the 4M loan given that he still has the capital from it, the most he can lose playing this game is the interest on the loan.
Unless he invested his capital in another mansion to do more of this, in which case, yes, him and his bank are shafted, but it's ok, MrScrooge will still have made huge amounts of money during that time, paying no tax, and the bank will get bailed out by the taxpayer. All is fine.
Post edited at 12:13
In reply to 999thAndy:
I suspect that answer is tied up in the reason as to why gambling profits aren't taxable!
> I bought a house in 1989 (at the top of the market, because "houses always go up in price") and sold it 6 years later for £17000 less than I paid for it. Would I get a rebate on my income tax?
I suspect that answer is tied up in the reason as to why gambling profits aren't taxable!
In reply to RomTheBear:
Except if that £4M is invested in FSCS protected schemes - so he can count on having the capital - he's going to spend his days juggling 48 different back accounts to generate something like £50k of pre-tax income. (Making a brief estimate of average rate over the top 10 instant access accounts), if there are even 48 separate FSCS registered entities. Or he's going to have to put that money into something that is vulnerable to the exact same things that could knock the house value out. Let's not forget that if its FSCS protected schemes that they will pay tax on that income. You could argue that they're evading NI contributions but not tax, but they're probably above the ceiling for the former anyway. If they invested their capital elsewhere, accepting a risk of a crash wiping out their collateral value and their capital, they would either have to pay tax on the return it generated, or evade tax on their revenue; either way that can and should be dealt with there, not through another tax. Throw in tax and the cost of arranging a £4M loan every year and this doesn't sound attractive to me.
Frankly, if I'd found myself owning a £4M townhouse as my primary house, I would have been productive or lucky enough that I'd not spend my days exploiting the capital in this way, and would have better things to do with my time - either continuing being highly productive and rolling in it, or selling the house I'd inherited and setting myself up for life in California...
> he doesn't have to refinance the 4M loan given that he still has the capital from it, the most he can lose playing this game is the interest on the loan.
Except if that £4M is invested in FSCS protected schemes - so he can count on having the capital - he's going to spend his days juggling 48 different back accounts to generate something like £50k of pre-tax income. (Making a brief estimate of average rate over the top 10 instant access accounts), if there are even 48 separate FSCS registered entities. Or he's going to have to put that money into something that is vulnerable to the exact same things that could knock the house value out. Let's not forget that if its FSCS protected schemes that they will pay tax on that income. You could argue that they're evading NI contributions but not tax, but they're probably above the ceiling for the former anyway. If they invested their capital elsewhere, accepting a risk of a crash wiping out their collateral value and their capital, they would either have to pay tax on the return it generated, or evade tax on their revenue; either way that can and should be dealt with there, not through another tax. Throw in tax and the cost of arranging a £4M loan every year and this doesn't sound attractive to me.
Frankly, if I'd found myself owning a £4M townhouse as my primary house, I would have been productive or lucky enough that I'd not spend my days exploiting the capital in this way, and would have better things to do with my time - either continuing being highly productive and rolling in it, or selling the house I'd inherited and setting myself up for life in California...
Post edited at 14:56
In reply to wintertree:
???? I don't think you understood what I was explaining. It's not about making money of a liability taken of the house by getting returns from it in a savings account, in fact that would probably be extremely difficult given that typically saving rates are lower than borrowing rates.
> Except if that £4M is invested in FSCS protected schemes - so he can count on having the capital - he's going to spend his days juggling 48 different back accounts to generate something like £50k of pre-tax income. (Making a brief estimate of average rate over the top 10 instant access accounts), if there are even 48 separate FSCS registered entities. Or he's going to have to put that money into something that is vulnerable to the exact same things that could knock the house value out. Let's not forget that if its FSCS protected schemes that they will pay tax on that income. You could argue that they're evading NI contributions but not tax, but they're probably above the ceiling for the former anyway. If they invested their capital elsewhere, accepting a risk of a crash wiping out their collateral value and their capital, they would either have to pay tax on the return it generated, or evade tax on their revenue; either way that can and should be dealt with there, not through another tax. Throw in tax and the cost of arranging a £4M loan every year and this doesn't sound attractive to me.
???? I don't think you understood what I was explaining. It's not about making money of a liability taken of the house by getting returns from it in a savings account, in fact that would probably be extremely difficult given that typically saving rates are lower than borrowing rates.
In reply to RomTheBear:
Perhaps that's because you explained it wrong then?!?? That apparently wrong interpretation was the only way I could square your nonsense of someone releasing increased value from their property without taking on any risk if property prices then fall, which is what you appear to be suggesting.
How does he have the capital? He does not have it in the house - it is now owned by the lender - he does not have it in cash because he has spent it - isn't that the whole point of their Evil Plan?
If I borrow against the increased value of my house, then spend that money, then the value of my house drops I am f---ed when it comes to loan renewal time. All this is ignoring the interest penalty of the borrowing.
Have you thought this through at all? Do you have any evidence of anyone doing this? You seem to be suggesting that someone realises the increase value of their house by borrowing against it and then not spending the money and not investing the money. So this is only of use for people who want to swim in their cash Scrouge McDuck style, and who can afford the whacking great interest payments to do so. It is of no other use what so ever and makes no real world sense.
Or have I missed something? Other than someone on this thread lacking a basic grasp of money?
> ???? I don't think you understood what I was explaining.
Perhaps that's because you explained it wrong then?!?? That apparently wrong interpretation was the only way I could square your nonsense of someone releasing increased value from their property without taking on any risk if property prices then fall, which is what you appear to be suggesting.
> He doesn't have to refinance the 4M loan given that he still has the capital from it, the most he can lose playing this game is the interest on the loan.
How does he have the capital? He does not have it in the house - it is now owned by the lender - he does not have it in cash because he has spent it - isn't that the whole point of their Evil Plan?
If I borrow against the increased value of my house, then spend that money, then the value of my house drops I am f---ed when it comes to loan renewal time. All this is ignoring the interest penalty of the borrowing.
Have you thought this through at all? Do you have any evidence of anyone doing this? You seem to be suggesting that someone realises the increase value of their house by borrowing against it and then not spending the money and not investing the money. So this is only of use for people who want to swim in their cash Scrouge McDuck style, and who can afford the whacking great interest payments to do so. It is of no other use what so ever and makes no real world sense.
Or have I missed something? Other than someone on this thread lacking a basic grasp of money?
Post edited at 16:55
In reply to wintertree:
yes you do take a risk, you risk losing the interest if the price of the house falls and you can't refinance. So it works only if you are confident that house prices will keep rising and interest rates stay low.
No it's not the point, because the capital is used to pay back the loan, it's not spent.
What he can spend though is the difference between the rise in value of his house and the interest rate. As long as the interest rate is lower than the rise in value, he's winning.
As an example it's not really different from people stoozing 0% credit card, you take credit out of it, invest it in something that guarantees you 3/4% net of tax, and then pay back the credit card before the time limit and keep the interest you earned.
> Perhaps that's because you explained it wrong then?!?? That apparently wrong interpretation was the only way I could square your nonsense of someone releasing increased value from their property without taking on any risk if property prices then fall, which is what you appear to be suggesting.
yes you do take a risk, you risk losing the interest if the price of the house falls and you can't refinance. So it works only if you are confident that house prices will keep rising and interest rates stay low.
> How does he have the capital? He does not have it in the house - it is now owned by the lender - he does not have it in cash because he has spent it - isn't that the whole point of their Evil Plan?
No it's not the point, because the capital is used to pay back the loan, it's not spent.
What he can spend though is the difference between the rise in value of his house and the interest rate. As long as the interest rate is lower than the rise in value, he's winning.
As an example it's not really different from people stoozing 0% credit card, you take credit out of it, invest it in something that guarantees you 3/4% net of tax, and then pay back the credit card before the time limit and keep the interest you earned.
Post edited at 18:11
In reply to RomTheBear:
You're talking absolute twaddle. If I borrow money against my house and spend it, and then the house isn't worth the money I borrowed, I don't just owe the interest on the loan, I owe capital and the house is no good as collateral for refinancing the loan, and my loan is called in and "my" house is repossessed. Unless you know someone who'll lend me £4M without collateral in a loan that never expires and never needs refinancing?
Yes, as long as. However, as he spends he ends up with an ever growing loan against a house whose value can evaporate. If it evaporates, the risk isn't just the interest payments, it's that the loa his now larger than the collateral. As, in the real world, loans are for fixed periods, when he comes to refinancing time he won't have the collateral to secure a new loan, and the old one is called in. Big loss. This was my point earlier, which you argued with. For reference, the quotes are below.
I said
You then said:
I can't square this with what you are saying now. Basically you appear to be talking twaddle.
> yes you do take a risk, you risk losing the interest if the price of the house falls and you can't refinance. So it works only if you are confident that house prices will keep rising and interest rates stay low.
You're talking absolute twaddle. If I borrow money against my house and spend it, and then the house isn't worth the money I borrowed, I don't just owe the interest on the loan, I owe capital and the house is no good as collateral for refinancing the loan, and my loan is called in and "my" house is repossessed. Unless you know someone who'll lend me £4M without collateral in a loan that never expires and never needs refinancing?
> What he can spend though is the difference between the rise in value of his house and the interest rate. As long as the interest rate is lower than the rise in value, he's winning.
Yes, as long as. However, as he spends he ends up with an ever growing loan against a house whose value can evaporate. If it evaporates, the risk isn't just the interest payments, it's that the loa his now larger than the collateral. As, in the real world, loans are for fixed periods, when he comes to refinancing time he won't have the collateral to secure a new loan, and the old one is called in. Big loss. This was my point earlier, which you argued with. For reference, the quotes are below.
I said
> I would laugh in the face of Rom's hypothetical millionaire when another 2008 happens however, and they've got to refinance a £4M loan and the value of their house has dropped to £2M. The consequences of this are not pretty, and everyone looses. Except whoever gets to buy the repossession at a knock down price.
ReplyYou then said:
> he doesn't have to refinance the 4M loan given that he still has the capital from it, the most he can lose playing this game is the interest on the loan.
I can't square this with what you are saying now. Basically you appear to be talking twaddle.
In reply to wintertree:
What's with the personal insults? Many posters come here to enjoy exploring topics of interest by pursuing a line of argument, happy to be countered by an intelligent and opposite point of view. The idea is to seek truth not win some semantic game. You'd do well to pursue a similar approach rather than seeking confrontation.
I've enjoyed your posts over the months I've been here and get the distinct impression you are very intelligent chap, but that doesn't give you a monopoly on good ideas, nor is it any guarantee of wealth for that matter. So chill and keep the good thoughts flowing.
> You're talking absolute twaddle....
> I can't square this with what you are saying now. Basically you appear to be talking twaddle.
> I can't square this with what you are saying now. Basically you appear to be talking twaddle.
What's with the personal insults? Many posters come here to enjoy exploring topics of interest by pursuing a line of argument, happy to be countered by an intelligent and opposite point of view. The idea is to seek truth not win some semantic game. You'd do well to pursue a similar approach rather than seeking confrontation.
I've enjoyed your posts over the months I've been here and get the distinct impression you are very intelligent chap, but that doesn't give you a monopoly on good ideas, nor is it any guarantee of wealth for that matter. So chill and keep the good thoughts flowing.
In reply to BnB:
That didn't seem like a personal insult, and for clarity I did not mean it as a personal insult. "Talking twaddle" is not insulting someone's person, but suggesting they may have the wrong end of the stick.
I'm not trying to win a semantic game. I am trying to understand how on earth Rom thinks he is talking sense. Either he is talking twaddle or I am missing something in a big way. I should have stated the second possibility in my last post to balance the other possibility.
I was not seeking confrontation but a genuine understanding of his logic, I am afraid after being argued round full circle I decided it was easier to refer to the logic as twaddle. Lazy perhaps, but better than being argued around full circle again and still not getting a clue what on earth he is actually suggesting.
Peace and thanks for the comment.
> What's with the personal insults?
That didn't seem like a personal insult, and for clarity I did not mean it as a personal insult. "Talking twaddle" is not insulting someone's person, but suggesting they may have the wrong end of the stick.
> The idea is to seek truth not win some semantic game
I'm not trying to win a semantic game. I am trying to understand how on earth Rom thinks he is talking sense. Either he is talking twaddle or I am missing something in a big way. I should have stated the second possibility in my last post to balance the other possibility.
> You'd do well to pursue a similar approach rather than seeking confrontation.
I was not seeking confrontation but a genuine understanding of his logic, I am afraid after being argued round full circle I decided it was easier to refer to the logic as twaddle. Lazy perhaps, but better than being argued around full circle again and still not getting a clue what on earth he is actually suggesting.
Peace and thanks for the comment.
In reply to RomTheBear:
Right. I borrow £4M cash against my £4M house. At the end of the year I repay £4.16M cash (£4M+4%) and borrow £4.4M cash against my £4.4M house. This leaves me with £4.24M cash borrowed against a £4.4M house.
At the end of that year, the housing market crashes and my townhouse is now worth £2M, and my £4.4M loan is due with 4% interest, meaning I must repay £4.58M. Under your scheme I'd take out a bigger loan on my house, but the problem is my house is fully mortgaged and I only have £4.24M. That's making the massive assumption that I've not spent any of the loan, which was the whole point for taking the loan out under your scheme. So here I am with a property worth £2M held as collaterol for £4.58M debt and I have only £4.24M cash. I will be laughed out of the bank if I try and re-mortgage, and my loan will be called in. I repay all my cash, this leaves my house owned as collateral by the lender, and me penniless and owing them £34,000. If I'd been playing this game for 10 years instead of 2 I'd probably how them over half a million.
Yes I agree and as I said
To which you replied
Here is the problem. The whole reason you tell me he does this is to release the capital to spend it, so he clearly does not have all the capital any more - otherwise what is the point to this sordid dodge. I got sidetracked into imagining he'd invested the released capital based on your assertion that he still had it, but perhaps I was letting your muddle muddle me.
I genuinely do not think you have thought this through. I do agree entirely that whilst the times are good someone can keep releasing funds from the appreciation of their house as you describe and not pay tax on that gain, but when times are bad they will be totally, completely and utterly screwed and the house will be repossessed in no time. It's not a magic risk free way of tax free income generation, anyone buying a property to do this takes on massive risk. I've recently seen first hand the results of someone who apparently did this and took a sledgehammer and chainsaw to the property when they got their eviction notice. I can't imagine ever advising someone to use this as a way to make tax free money.
> Read my original post, point by point.
> Are you sure ? I can think of plenty of ways you could use that to become very rich, and also paying ZERO tax.
> Let's say Mr McScrooge has a 4 million pounds mansion in London, he takes a 4 million pounds loan, using the house as a collateral, repayable at the end of year one, with 4% interest, which is a total repayment of £4,160,000. But between year one and and year two value of his house has increased by ten percent, he can therefore now take another loan of £4,400,000, repay the first loan, and keep the £240,000 difference in his pocket. Also he has paid ZERO income tax on this 240K because this is from a loan.
Right. I borrow £4M cash against my £4M house. At the end of the year I repay £4.16M cash (£4M+4%) and borrow £4.4M cash against my £4.4M house. This leaves me with £4.24M cash borrowed against a £4.4M house.
At the end of that year, the housing market crashes and my townhouse is now worth £2M, and my £4.4M loan is due with 4% interest, meaning I must repay £4.58M. Under your scheme I'd take out a bigger loan on my house, but the problem is my house is fully mortgaged and I only have £4.24M. That's making the massive assumption that I've not spent any of the loan, which was the whole point for taking the loan out under your scheme. So here I am with a property worth £2M held as collaterol for £4.58M debt and I have only £4.24M cash. I will be laughed out of the bank if I try and re-mortgage, and my loan will be called in. I repay all my cash, this leaves my house owned as collateral by the lender, and me penniless and owing them £34,000. If I'd been playing this game for 10 years instead of 2 I'd probably how them over half a million.
> Mr McScrooge can keep doing this every year and get a 6 figure income every year without actually doing anything, (and never paying any tax) as long as interest rates are lower than the year on year increase in value of his property.
Yes I agree and as I said
> when another 2008 happens however, and they've got to refinance a £4M loan and the value of their house has dropped to £2M. The consequences of this are not pretty, and everyone looses. Except whoever gets to buy the repossession at a knock down price.
To which you replied
> he doesn't have to refinance the 4M loan given that he still has the capital from it, the most he can lose playing this game is the interest on the loan.
Here is the problem. The whole reason you tell me he does this is to release the capital to spend it, so he clearly does not have all the capital any more - otherwise what is the point to this sordid dodge. I got sidetracked into imagining he'd invested the released capital based on your assertion that he still had it, but perhaps I was letting your muddle muddle me.
I genuinely do not think you have thought this through. I do agree entirely that whilst the times are good someone can keep releasing funds from the appreciation of their house as you describe and not pay tax on that gain, but when times are bad they will be totally, completely and utterly screwed and the house will be repossessed in no time. It's not a magic risk free way of tax free income generation, anyone buying a property to do this takes on massive risk. I've recently seen first hand the results of someone who apparently did this and took a sledgehammer and chainsaw to the property when they got their eviction notice. I can't imagine ever advising someone to use this as a way to make tax free money.
In reply to wintertree:
Yes this is the risk of course.
It's an investment strategy, but it carries no more risks than simply taking out a standard mortgage.
Plot it on excel and do the balance sheet year on year if you don't believe me.
> Right. I borrow £4M cash against my £4M house. At the end of the year I repay £4.16M cash (£4M+4%) and borrow £4.4M cash against my £4.4M house. This leaves me with £4.24M cash borrowed against a £4.4M house.
> At the end of that year, the housing market crashes and my townhouse is now worth £2M, and my £4.4M loan is due with 4% interest, meaning I must repay £4.58M. Under your scheme I'd take out a bigger loan on my house, but the problem is my house is fully mortgaged and I only have £4.24M. That's making the massive assumption that I've not spent any of the loan, which was the whole point for taking the loan out under your scheme. So here I am with a property worth £2M held as collaterol for £4.58M debt and I have only £4.24M cash. I will be laughed out of the bank if I try and re-mortgage, and my loan will be called in. I repay all my cash, this leaves my house owned as collateral by the lender, and me penniless and owing them £34,000. If I'd been playing this game for 10 years instead of 2 I'd probably how them over half a million.
Yes this is the risk of course.
It's an investment strategy, but it carries no more risks than simply taking out a standard mortgage.
Plot it on excel and do the balance sheet year on year if you don't believe me.
Post edited at 06:38
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