The British tax system urges us to use property as a bank, because it is barely taxed.
Property…barely taxed?
The actual figures…calculated as the percentage of the total tax tax raised from property:
| #1 | United Kingdom: | 11.9% | |
| #2 | Japan: | 10.3% | |
| #3 | United States: | 10.1% | |
| #4 | Canada: | 9.7% | |
| #5 | Australia: | 8.9% | |
| #6 | Switzerland: | 8.1% | |
| #7 | France: | 6.8% | |
| #8 | Ireland: | 5.6% | |
| #9 | New Zealand: | 5.4% | |
| #10 | Netherlands: | 5.4% |
Hmm, that\’s that assertion dealt with then, eh?
That includes council tax, which is raised from property *inhabiting* not property *ownership*. Property ownership is, indeed, barely taxed.
As one would expect, Richard Murphy cannot agree quickly enough with Polly.
It seems silly, in retrospect, that the obvious fact that higher property equates to more affordable housing escaped me.
It must be that I’m American. Or something.
1. Total UK property and wealth taxes are indeed about 12% of total revenues, if you define it widely enough – but that table excludes Hong Kong, Taiwan etc that have much higher property taxes, much lower income taxes and no VAT.
2. Relative to taxes on incomes and production (about 50%), notional income and gains from land and buildings, especially owner-occupied, is very lightly taxed, the overall effective rate is about 5% to 10% (but woefully difficult to calculate).
3. And if we are going to look at taxes, why not look at subsidies? The interest rate cuts have seen a net annual transfer of wealth from savers to borrowers of about £30 billion, which more than wipes out council tax.
4. @ Dennis, higher property taxes (if designed correctly) would act like a higher interest rate so keep property prices low and stable, and, all things being equal, allow for a cut in taxes on production and incomes. So people have higher net incomes to pay for something that’s lower in price. What’s not to like?
See also Harrisburg.
Mark,
the overall effective rate is about 5% to 10%
So, they are all involved in tax avoidance according to the Guardian, Murphy, et al.?
What John said, basically. Compared to most other jurisdictions[1], avoiding capital gains taxes on UK property is remarkably easy. Admittedly, for commercial property, it’s really only worth it if you’re non-UK based, which is one of the reasons why there’s very few quoted property companies left.
[1] With the exception of France until the end of 2007, where a major bug in the France-Luxembourg tax treaty allowed you to hold French property completely tax free, which may explain #7 above.
Q: What do you call that useless bit of skin around a vagina?
A: Polly.
Cream doughnuts for OTC!
However you look at it, a percentage 11.9% sounds woeful. That means 88.1% of the tax base comes from other sources, the vast majority of which will be productive economic activity. The economy would certainly benefit from at least a partial reversal of those percentages.
I very rarely agree with Toynbee, but on this, I think she’s got it spot on.
@Dennis the Peasant
There is such a thing as “passing off”, you know.
Expect a call from my Mr Jarndyce.
First of all, I meant to say “higher property taxes”…
Proofreading is the enemy.
Second of all, what is “passing off” and who is Mr. Jarndyce?
Are they the sort of British things we ignant Americans don’t know nothin’ about?
Mark-
That’s all wonderful if the property owners can afford to pay the higher taxes…
Here in the States, for anyone living in a owned home on a fixed income (like the elderly and the disabled), higher property taxes equate to a lower standard of living and perhaps the even more pleasant experience of having to sell (at a nice low price) and move elsewhere…
Which Polly (and Richard) would then blame on the vagarities of free markets and the heartless capitalist economic system.
Here’s a novel idea for ya Brits… How about removing a few of the barriers to building new housing? You might end up with low property taxes and affordable housing.
This is all wrong. Polly is essentially correct here.
What you must look at is taxation on *investments*.
Let’s look at them:
* Shares – income taxed, capital gains taxed
* Gilts – income taxed, capital gains taxed
* ISAs – untaxed but only small
* Pensions – eventual income is taxed, capital gains are not
* First houses – no income, use-value from use of house is untaxed, capital gains are untaxed
Now, which bears the lowest tax burden?
Dennis the P — as you were, buddy!
“Gilts – income taxed, capital gains taxed” – not the latter, surely?
Dennis-
Er, thanks.
Current-
Your home is NOT an investment.
It is where you hang your hat.
Understanding the distinction is crucial, largely because at the end of a long day you cannot hang your hat on a peg in your shares, gilts, ISAs or pensions.
“Your home is NOT an investment. It is where you hang your hat. Understanding the distinction is crucial, largely because at the end of a long day you cannot hang your hat on a peg in your shares, gilts, ISAs or pensions.”
Yes, it has use-value. That doesn’t mean though that it cannot also be an investment. Obviously people do use their houses as investments, and the reasons why are clear.
dearime – you are right.
D The P, land value taxers have been pestered with the ‘little old ladies’ since time immemorial.
Firstly, they are the worst ‘Not in my backyarders’ of all, they are the ones protesting against new homes being built (which would go half way to solving the issue as you yourself point out).
Secondly, in any sane world, people with the highest incomes drive the biggest cars, go on the nicest holidays, send their children to the best schools etc. Why is it unusual for them also to live in the biggest houses?
People who save up during their working life have the nicest retirement. If they pay less income tax, they can save more, so their investment income covers the tax, it all comes out in the wash.
Plus you contradict yourself – if the little old lady’s house falls in value, then so does the tax, and she can stay put. Or the house rises in value, she has to move, but she banks a nice profit on trading down to somewhere smaller.
“Or the house rises in value, she has to move, but she banks a nice profit on trading down to somewhere smaller.”
Why should someone have to move because their house has risen in value (a house they bought with taxed income).
Mark-
There is no contradiction, if you think about it. Maybe this isn’t true in the UK, but around these parts, taxing authorities do not rush to re-appraise homes that may have lost value quite as quickly as when homes values are on the move upwards. Funny how that works.
David-
What could be more stimulating for the elderly and the infirm than having to sell one house, buy another, pack, move and then unpack? Then there’s meeting the new neighbors, finding the shops, etc…
Keeps the blood flowing (especially if you’re using a walker).
Obnoxio:
“Useless” is in the eye (or something) of the
beholder.
Everyone here has missed the main point, which is that to Dear Polly and her ilk, any tax less than 90% isn’t high enough.
Commie bitch.
Current-
It is my experience (20+ years as a CPA, and one who has done his share of personal financial planning for clients) that when people start talking about a home as an “investment”, it’s because they’re talking themselves into buying more home than they can afford. Either that or they’re trying to justify the home they’ve already bought and cannot afford.
Dennis the Peasant,
“Mark-
There is no contradiction, if you think about it. Maybe this isn’t true in the UK, but around these parts, taxing authorities do not rush to re-appraise homes that may have lost value quite as quickly as when homes values are on the move upwards. Funny how that works.”
Come now, come now: in the world of Mark, that kind of thing would never happen because… er… because… Well, because it just wouldn’t, OK?
DK
David, this chat about homes being bought “out of taxed income” is a red herring as well.
1. Ideally, we’d ONLY have Land Value Tax, and no taxes on income and production. People are always quick to slag off Georgists for advocating LVT but few remember that the flipside is NO TAXES on incomes!!!
2. As house prices tend to rise long term, the bulk of it is NOT out of post-tax income, it is otherwise untaxed capital gain.
3. House prices go up largely because of restrictions on supply. So the NIMBYs want it both ways – no new housing to force first time buyers to overpay (out of “taxed income”, as it happens) but for Heaven’s sake, no tax on their gains either.
Basically non-LVTers want to force other people to subsidise their entitlement to a monopoly of use on their property. They want to prevent their fellow citizens from getting a dividend.
If you’ve leased more car than you can afford, you lease a cheaper car. Some people on here would say that since the leaser has become used to driving the lease car, they should force other people to help pay the lease!
The right to property is an externalising right. It should therefore be taxed.
It’s hard to disagree with AC1 here.
Hell, we could even do some kind of state-sponsored equity release scheme (I know this will make MW emit steam from his ears, but heigh-ho), whereby oldies living in houses for which they can’t afford the tax can offset it against estate value, to be paid on the last surviving partner’s demise. Obviously, this’d be combined with the abolition of IHT for other estates.
Dennis: “It is my experience (20+ years as a CPA, and one who has done his share of personal financial planning for clients) that when people start talking about a home as an “investment”, it’s because they’re talking themselves into buying more home than they can afford. Either that or they’re trying to justify the home they’ve already bought and cannot afford.”
I see your point. But I disagree. A house may be an investment, I know several people who have bought large houses during middle age and “downsized” when retired. My own parents have done that recently, they owned two home both of which they could certainly afford.
I’m not saying here that a house is necessarily a good investment. What I’m saying is that it is a very tax efficient one.
Of course a person may invest in it unwisely and take out a larger mortgage than they can afford. This though doesn’t make it any less of an investment. Nor does it change the tax situation.
AC1,
Problem is LVT is like a car lease agreement that the State can change the terms on mid way, bit like the attempt to whack on a very high road tax on older cars recently. You saw what happened there – peoples’ vehicles SUDDENLY cost more to tax than they were worth (greens went to get a room at that point) causing great upset and disruption.
Now, if LVT recognised homesteading, i.e. ALL first homes with land below a couple of acres are exempt, then it would avoid all the little old ladies. But I doubt it would – LVT is pushed by many who actually want to end the very concept of freehold, who want to see everyone a tenant to the State.