Tax Houses Now
by Richard Reeves
Sometimes a picture really is worth a thousand words. Or in this case, a graph. This one shows the economic benefits derived from housing for different income bands:
The graph is from an excellent new report from Shelter, Rethinking Housing Taxation, launched at a seminar earlier this week. It shows that middle England loses out in a very big way. The poorest get significant support in the form of subsidised council housing or housing benefit. The well-off do very well from exemption to capital gains tax for principal private residences. Housing taxation is seen as the 'third rail' of British politics - touch it and you get fried. But as well as avoiding the injustice of people, not all of them MPs, benefiting from 'flipping' their second and principal homes, levying capital tax on main homes would raise about £6.5 billion a year - three times the cost of Sure Start, or almost the entire schools budget.
There will always be those who say that the politics of taxing property cannot be made to work: it's too complex, and the politics are too difficult. But if not now, after a property-fuelled boom and catastrophic bust; if not now when the cascade of wealth down the generations is about to widen; if not now when every option for tax needs to be considered; if not now when politics and economics are in flux - if not now, then when?
Jim Vine
Julian, my understanding is that the assertion that owner occupation receives tax advantages is made by way of comparison to alternative tenures.
Specifically, compared to private renting, owner occupiers do not need to take into account an element of CGT in their calculations of their housing expenditure while this is factored into the cost of private renting.
As an aside, there are (at least) two further differences in the treatment of taxation - (1) income tax is generally due on private rental income (and hence factored into rents charged) and (2) landlords are able to offset their mortgage interest payments against this tax. These act in opposite directions as to whether owner occupation is treated favourably, and both used to have analogues for owner occupiers. The first was the old Schedule A income tax on "imputed rents" (i.e. the money an owner occupier saves on rent by owning) and the second was MITR (mortgage income tax relief). MITR lived on for decades after Schedule A was abandoned, effectively meaning that people were receiving an offset for tax purposes against an income that the tax system didn't deem them to be receiving.
Julian
When is a tax exemption a susbsidy and when is just the way the system works? You imply that the natural state of things would be for homes to be taxed but that "the well-off do very well from exemption". The well-off only realise a benefit if they treat their homes as an investment, which most people do not. Primary homes are not subject to capital gains tax because they are not, for most people, a capital investment.
I have owned three properties: a flat big enough for one, a house big enough for a couple and a house big enough for a family of four. Each move was a severe financial stretch and I have no idea where Iwould have found the money to pay CGT on top.
This isn't to say that the system shouldn't be reformed but the case needs to be argued on its merits and not on a spurious assertion that the "rich" are being subsidised.