Adam M

Most people I have spoken seem to be pretty convinced that this will be the next tax they bring in.

I am not into economics as such but I realise that the effect this will have on the housing market should be fairly simple to predict.

I am wondering if someone can spell out the ramifications for me.

thanks in advance.

Diablo

Price effects will be subject to any limits set, but I would expect prices to rise for the following reasons:-

1) "Marginal" sellers will not be so inclined to move simply to realise profit as this profit will be reduced.

2) Those selling will have less equity to fund new house purchase, therefore borrowing will increase (unlikely even if prices fall they will fall as much as the equivalent CGT liability)

3) There will probably be less housing available as sales volume falls, therfore what is on the market will be in greater demand

4) Those selling will require increased selling price to account for the loss of that element which becomes payable due to CGT

And we have a viscious upward spiral if increased prices and borrowings.

And all to fund the hole that is Labour's fiscal policy.

fast bloke

I would think that you would get a dip in prices as soon as it is introduced. There would also be a possibility that lenders would tighten up the criteria as there would be less of a surplus of equity if a borrower defaults. (you can guess who would get first cut between the lender and the taxman) It will be harder for FTB's to get on the ladder and they wouldn't have the same motivation to buy the first house, as they wont percieve that they are being left behind.
If the lenders don't react then it will probably be pretty much as Diablo reckons. If the lenders do react the increased borrowing required to fund the spiral would not be available and the entire game could go pear shaped, as a significant fall in house prices would give labia less revenue from the tax, so they would more than likely increase the tax rate to fill the coffers.

Dunk

iTrader: (1)

IMHO highly unlikely,(negative £ impact to everyone).
What's more likely would be change stamp duty to assist the lower end & hit the upper market. (therefore more gain than lose, but greater income to the treasury.)

D

TopBanana

Adam, there's no way they would introduce this. It wouldn't even raise any money.

Luminous

iTrader: (3)

If Labour do introduce this, I think they will introduce it at a low rate to start with. IF not, then I think a lot of people may well try and sell before the tax can tax effect. This may cause a crash, which is not what Labour want.

Brendan Hughes

http://bbs.scoobynet.co.uk/showpost....1&postcount=21 and onwards. Can Diablo/fb etc comment on the idea that you could offset any loss?

Flatcapdriver

It's all a bit theoretical at the moment but if you take second homes/buy to lets my understanding is that you can offset any losses against CGT. However, I can't see that being the case if this tax is implemented and perhaps I was a bit misleading when I originally linked any equity growth to CGT as it may simply be an introductory tax by another name that starts off fairly low (say 2-3%) and is slowly increased.

Diablo

Would be nice Brendan. Are you suggesting an offset of capital loss on sale (assuming price crash) against income tax?

I'm no tax specialist so will leave this to others, but how many of us would, for example, have an allowable capital loss to set off against the gain?

There are many taxes to which private individuals are subjected for which there is no rebate.

Brendan Hughes

Oh, OK As I said in the other thread, I was told that the general principle of tax is that it has to work both ways. Looks like that's been kyboshed in the last 20 yrs then - quel surprise.

Hanslow

The cynical side of me thinks that the raising of the stamp duty threshold is paving the way for the CGT. Give with one hand, take with the other. The problem is, few people (in the grand scheme of things) actually realise the monetary profit from increased house prices as it is invested in the next primary property, i.e. moving up the housing market. I would view it as an unfortunate extra cost with no real reason or benefit that is made to the government, which is how I currently view stamp duty.

What is the reason why we pay stamp duty anyway? Is it purely a government coffers thing where they realised an easy way to make money (not a pop at this government as I know it was introduced a while back)?

For our next house purchase (we are currently looking to move) we are sticking below the 250k stamp duty threshold, one reason being we would pay an extra 5k to the government because the house was worth a bit more? What benefit do we get from that?

bumper

Perhaps a time limit will be imposed? Whereby if you buy and sell a property say within 12-18 months then CGT will be payable with taper relief over the next 5-10 years reducing the CGT level to zero. This would have the effect of taxing those who buy and sell their main residence to realise a profit, but who ever buys a 'Home', and not just a house to decorate and sell on, will largely remain unaffected. This all however flys in the face of the mobile workforce. Which brings me on to the next point. Road charging would mean that most people would move closer to work to try and eleminate being taxed per mile. So how can the government ensure that people simply can't afford to move closer to their workplace? They introdcue CGT on the sale of your main residence! Very clever if they do it and it comes off. People will be trapped into either owning a property nowhere near their job and renting closer, paying per mile to use the road network or trying to get a job closer to home. Employers will see how close you live to the workplace and reduce your wages accordingly. There is a host of ramifications that road charging in conjunction with CGT on main residence will bring about.