Quite so, quite so

Capital gains tax, actually all taxes on investment, should be abolished. The correct taxationsystem is:

He said the IFS had long called for the introduction of an “average rate of return allowance”.

Because here’s the thing. We like investment, investment makes the future richer. It’s what makes the future richer. As we also know, tax something and you get less of it. So, don’t tax investment to make the future richer.

And yet economic rents should be taxed. Normal returns to capital not, but “excess profits”, stuff earned by having a corner or a privilege, should be and harshly.

So, distinguish between that normal return on capital (say, the average return in the economy, something like 3 to 5% real, currently this is horribly depressed by QE but in normal times not far off normal long term gilts yields perhaps) and such excess returns. Tax the latter and not the former.

This now accords with best theory – optimal taxation theory, Mirrlees and all that – and also solves the political problem. The plutocrats get taxed and the average saver not so much.

But then just because something is sensible doesn’t mean it will become policy.

45 thoughts on “Quite so, quite so”

  1. Similar changes to IHT are overdue.

    Consider an investment property valued £200k. Father dies, leaves it to his son and £80k tax is payable.

    Ten years later the same property is worth £500k. The son dies leaving it to the grandson and a further £200k is payable.

    Ten years later (its an unfortunate family), the next grandson dies. The property is now worth £1m so that’s another £400k tax.

    This one property has now been taxed at 68% of its present value. If the rules don’t change then at the next death the cumulative IHT paid on it will be approaching 80%.

  2. @ John

    The gain on house price inflation is the very definition of “excess profits”. All the owners did was to sit and wait for it to appreciate in value. It deserves to be taxed that way.

  3. BlokeInTejasInNormandy

    Mr Yan

    Appreciate in price, certainly – but value less so.

    Getting taxed on the State’s mismanagement of inflation is a double cruelty.

  4. So you tax them on their “excessive” gain. Do refund it when they have to pay more for the next property? Because unless you do, the gains aren’t excessive.

    If you want people to never shift house (like France) then you’ll get people not able to move (like France) and inflexible labour markets (like France).

  5. Mr Yan,

    Do you consider it acceptable for the state to take nearly 80% of asset value? Because that’s what it represents.

    Hell why not just go the extra mile and take it all comrade.

  6. @ Mr Yan
    The gain is not taxed because the home-owners wishing to move don’t actually gain anything from inflation since the new house has, on average, gone up by as much as the house they are selling.
    CGT on sale by owner-occupier is taxing an imaginary gain.

  7. john 77’s point holds until the point of the house owner’s death. At that point she’s not going to buy another one.

    Anyway, whenever the chance arises, don’t raise taxes: cut expenditure, preferably continuing expenditure i.e sack lots of civil servants, teachers, NHS managers, local government bigwigs, and so on, and cut the pension entitlements of the rest (not retrospectively, of course).

    Cut capital expenditure that’s a lousy idea e.g. HS2 and (I assume) the current nuke plans.

    I know this won’t feel like “the right time” but no time ever feels like the right time. Just do it.

  8. My original post was referring to an investment I.e. rent generating property not to a residential home.

    My concern was any asset, rent generating or otherwise, being repeatedly taxed up to a cumulative level amounting to almost 80% of its present value.

  9. @ Chester Draws, John & john77

    For IHT (the original point), yes I think the state should take a large chunk as the benefactors of the estate have made an unearned profit via house inflation.

    Sure, there maybe a few corner cases where the house was massively improved (extension etc) paid for by the son just before the father died, but thats not going to be the norm.

  10. CGT on sale by owner-occupier is taxing an imaginary gain.

    Indeed, and currently capital gains tax is not due on the sale of a main residence.

  11. Mr Yan

    A house cannot ‘deserve’ anything… it’s a thing not a person. So since things cannot be taxed only people can, whom is being taxed? Well the owner is dead, so not a person. The person being taxed then is the inheritor: why do they ‘deserve’ to be taxed just because their father died?

    If the inheritor is living in the house, he now has to find £80K. If he does not have that, probably not, then he has to get a mortgage, if he can, or sell his home. I suppose he could refuse the inheritance, but would still lose his home.

    How is that ‘deserved’?

    Inheritance is an unrealised gain. If it must be taxed, tax the gain when realised.

  12. What the F are excess profits? The aim of profits is to be as much as possible. 3-5% is inadequate profits, tantamount o thinly-veiled losses. And no, I don’t make any distinction of fairness or profiteering in any case where the buyer and seller are free to treat over the price for a fair sale. Where there is monopoly or non-level playing surface there may be excess profits. But that is always when dealing with the public sector, who have monopolies by law and make the rules which control trade.

  13. @ PJF
    I was explaining to Mr Yan why his claim that the rise in the nominal price of a house”deserves” to be taxed is incorrect.
    Quite correctly UK Capital Gains tax is not due on the sale of the owner’s principle residence but US tax is in the case where the individual is so rash that he has dual nationality.

  14. @ Mr Yan
    Firstly it is not necessarily the case that the heirs have made an unearned profit since inflation means that the money received from the sale has far less value per £ than the money used to buy it. Secondly IHT has to be paid before probate can be obtained so, in almost every case, they don’t have 40% of the estimated value of the house with which to pay IHT

  15. When house prices fall will I get a rebate on my unfair capital gain? Or is this a case of heads I lose, tails the state wins?

    Basing tax take on capital gains has a major flaw. Just when the economy tanks will be when capital gains tank. It’s a system designed to fail.

  16. @dearieme, rhoda, johns

    +1 Tax less, not more

    Now, like 2008-10 is the opportunity and right time to ruthlessly cut public sector employees and close quangos & ngos. Pols chickened out then, they must not repeat that failure

    Close PHE and sack every single PHE employee and ban them all from ever working in Public Sector or Charity again

    More Gov failure:
    https://www.thetimes.co.uk/edition/news/bungled-public-sector-pensions-reform-plan-lands-taxpayers-with-17bn-bill-nfvll9v28

  17. @ john77

    In (almost) every case the heirs have made an unearned profit since they didn’t invest anything in the property. There is an argument that their parents (in the example of IHT) wanted to pass on their hard earned savings to their children but said children have done zero to earn it.

    As for paying the 40% – don’t do probate (and lose the lot), take out a probate loan or pay it in instalments. It’s not like this is some great surprise when the elders stuff it. There are options to gift it (notice may be a problem on sudden death) or trusts that deal with this problem in a different way.

  18. “There is an argument that their parents (in the example of IHT) wanted to pass on their hard earned savings to their children but said children have done zero to earn it.”

    What the fuck has earned got to do with it? You might as well argue that the person whose DNA inheritance gives them an above average intelligence hasn’t ‘earned’ any of the fruits of that brain. After all the dunce of the class can’t ever become a brain surgeon, so why should the person who God smiled on the brains department benefit either? Everyone should be taxed on their intelligence, its only ‘fair’…….

    Once you go down the ‘you didn’t earn that’ route, its a slippery slope to a communist dictatorship.

  19. @rhoda
    Perhaps so. Their crimes are apparent, but prosecution only enriches more leechs and taxpayer pays again

    @Jim
    Excellent point. Yan is being vindictive. btw I’ve inherited nothing but an intelligent brain

  20. @ Jim

    In effect, you are taxed on intelligence. If one becomes a brain surgeon then you’re likely to be a higher rate taxpayer and thus contribute more to the government coffers than someone who works at some “lower” paid/skilled job.

    @ Pcar

    Not vindictive, but offering an opinion. I don’t think, even on here, that there are many that would have no tax (government) so money has to be raised somehow. I’d much prefer that tax came from the estate of dead people than to tax the living more. The dead no longer need the money whereas the living do.

    Does that mean I think the state should confiscate all inheritance? No. People should use the mechanisms on offer to reduce what the state takes to the minimum. Not just for IHT but in all other tax related matters.

  21. @ Mr Yan
    Basing your arguments on ignorant mis-statements does not lead to a useful debate. It is not true that the heirs have always made an unearned profit.
    Under New Labour UK house prices rose by 150% (i.e. to a multiple of 2.5x) in nine years, but in most other periods house prices have, after adjusting for inflation, fluctuated and in some periods have fallen even in nominal terms. If you had been around in the 80s and 90s you would have been familiar with the term “negative equity” referring to those houses where the sale price was less than the mortgage.
    As to your other comments: waving your hand which is not holding a magic wand and saying “get a Probate Loan” indicates your ignorance. After my mother died I was shocked that our bank did not agree to give me a bridging loan (what you call a probate loan) to pay the IHT I had banked with them for over 30 years and she had for nearly 60 years (but they had closed our branch, transferring the accounts to another branch who did not know me personally); fortunately the building society volunteered to pay the IHT out of the cash in her account there. I was obviously an excellent credit risk, so if I was rejected what makes you think anyone without a 30-year record of creditworthiness and a top quartile income would have a chance?

  22. @ john77

    Well debate is so people can learn something.

    So tell me, how do the heirs of an estate not make an unearned profit (“It is not true that the heirs have always made an unearned profit.”)?

    What difference does it make whether the asset in question appreciates or depreciates in value to the beneficiaries of the estate? If their ROI changed by this?

    If I were a cat loving spinster who leaves my house in London to Cats Protection in my will – did they earn that?

  23. Actually, the charity is a bad example as they are exempt. Say you leave it to your next door neighbour instead (or nurse or someone unrelated).

  24. @ Mr Yan
    Do you know what “profit” means?
    Kindly supply *your* definition as your question does not make sense using the normal definition.

  25. @ john77

    Dictionary definition of Profit:

    “a financial gain, especially the difference between the amount earned and the amount spent in buying, operating, or producing something.”

    Heirs of an estate have spend nothing on buying, operating or producing a house that has been bequeathed to them, so the difference on a £500,000 realisable value (to tip into IHT) is the unearned profit.

  26. @Mr Yan
    Your position is “state owns you and all your assets”

    Talking about legal trusts, gifts, jumping through hoops etc is pure distraction

    You sound like Corbyn & Ritchie

    IHT should be abolished

  27. @ Pcar

    Abolishing IHT will mean the shortfall being picked up by other methods of taxation. This is true even if you reduce the size of the state. Many (perhaps most) people will not be the beneficiary of an estate that is subject to IHT but they would need to pay more tax of some form if it were abolished.

    It’s no doubt annoying that you don’t get 100% of your perceived rightful inheritance (as per john77) but the state provides the legal framework and security that allows for assets to be held privately. That could be twisted to suggest the state owns your assets but I think that is a stretch.

  28. @ Mr Yan
    So you consider a Christmas Present is a profit? The recipient didn’t pay for it.
    “The amount spent” is the amount spent not “the amount spent by the owner’s heirs”.
    No, selling a house for less than one’s parent paid for it is not a profit.

  29. @Mr Yan

    The state does not own the public and their assets

    As you believe state does, why should anyone be exempt? Everyone would pay less of other taxes then surely?

    IHT is grossly unfair and imposes a vindictive distressing burden on grieving families. Yet for all the anxiety, fear and distress it imposes, paltry amounts are raised

    Inheritance Tax receipts totalled £5.2bn in 2017-18 – I’d bet the costs of bureaucracy and legal far exceeds that

  30. @ john77

    If that Christmas present was cash then it fits with the “financial gain” part of the profit definition, so yes.

    Next question, how many pendants can dance on the head of a pin concurrently?

  31. @ Pcar

    I assume you are another who thinks they have been ripped off for IHT?
    Are you campaigning to have it abolished or it the extend of your annoyance to post here?
    Maybe you don’t think it’s worth the bother (as the politicians are bastards, or on balance it’s better here than some shithole without IHT or maybe you don’t think you’d convince the majority of taxpayers that they should pay more in other forms of taxation).

  32. @ Mr Yan
    Maybe you should try joining debates in your native language? The only plausible excuse for your multiplicity of statements that are blatantly false is that you do not understand the language. If not, you are a troll.

  33. @ Mr Yan
    There is a difference between phrasing the truth in a less-than-perfectly-comprehensible manner and lying. I sometimes do the former *I* do not lie.

  34. @ Pcar

    My apologies. My wording was poor – “thinks they have been ripped off for IHT” should have been “expects they will be ripped off for IHT in future”.

    If you and your brother bought a flat for your mother (and excluding other heirs), I’d expect you to get 50% of the inheritance. Perhaps you mean 50% (after IHT) of the 50% share of the flat but you’re not clear on that point.

    In any case, so what?

    Unless you are ignorant of IHT, you should have both kept the property in your name (perhaps you didn’t ‘cos you own another property so didn’t want to be liable for CGT?). Also, it tells us nothing of the price you paid versus what it would realise now.

    That gain in value that you might expect to capture for yourself is what I suggest is a reasonable thing to tax on death.

    The legal right’s of the dead are in the estate. The state provides the legal certainty around the estate. What the dead person wanted to do is taken into account *but* they are no longer a legal entity. How, outside of the state providing that legal framework, would you expect to take possession of a dead persons property?

  35. @ john77

    Some of your responses have been (in part):

    “Basing your arguments on ignorant mis-statements”
    “Maybe you should try joining debates in your native language?”
    “The only plausible excuse for your multiplicity of statements that are blatantly false is that you do not understand the language.”
    “phrasing the truth in a less-than-perfectly-comprehensible manner and lying”

    I’m still waiting for you to point out where I’m ignorant and/or lying. No doubt it’s obvious to anyone who isn’t a troll. Also possible that you don’t have the time to point out the bleeding obvious.

    None of which changes the fact you haven’t made any actual counter arguments outside of ad hominem responses.

  36. @ Mr Yan
    Let’s start with your saying that the profit excludes the cost of the house when it was bought – and despite your dictionary saying to the contrary applying that to Christmas presents.
    The state is not essential for assets to be held privately as private ownership of assets pre-dates the existence of states and IHT is levied on assets held outside the UK – it is even levied on assets owned by people living outside the UK unless one can prove that they are not UK-“domiciled”. So your claim that “the state provides the legal framework and security that allows for assets to be held privately.” demonstrates your ignorance.
    You have not yet withdrawn “the benefactors of the estate have made an unearned profit via house inflation.” despite my pointing out that house prices frequently fall, even in nominal terms.
    You have not withdrawn “get a Probate loan”
    You said to Jim “you are taxed on intelligence” – which is not true. Intelligent people have more opportunity to apply for highly-paid jobs but they are taxed on their income which results from a combination of intelligence, hard work and luck and a highly intelligent housewife pays no tax.
    This post is getting long so I’ll provide more examples in part ii.

  37. @ john77

    * Let’s start with your saying that the profit excludes the cost of the house when it was bought

    I can’t find a quote saying that, but lets go with it anyway. In the majority of cases, what contribution did the heirs make to the cost of the house when it was bought? That would be nothing. If the house now tips into IHT territory, that implies it’s worth > £500k. What allows the heirs to pocket that asset value?

    * So your claim that “the state provides the legal framework and security that allows for assets to be held privately.” demonstrates your ignorance.

    That fact that a state wasn’t required in the past doesn’t alter the fact it is the state now that provides this framework.

    * “the benefactors of the estate have made an unearned profit via house inflation”

    In response to John who’s example was a property that went from £200k to £500k to £1M over 20 years – how did that happen without house price inflation?

    * You have not withdrawn “get a Probate loan”

    So is that not an option? These don’t exist?

    * You said to Jim “you are taxed on intelligence” – which is not true

    I said “In effect, you are taxed on intelligence” not the same thing.

  38. @ Mr Yan
    Part ii
    “excess profits” are those in excess of a reasonable rate of return. So a rise in the nominal price of a house that is less than inflation over the period is not an “excess profit”
    The original point was CGT not IHT. dearieme introduced the IHT question pointing out that my initial response did not apply when the last resident died (which is not necessarily when the owner died). Tim was talking out CGT. So your claim that IHT was the original point was a blatant mis-statement.
    There are many reasons for Pcar and his brother to buy a flat for his mother rather than buying it for themselves and having her as a tenant, the least of which is financial. But you *appear* to be ignorant of the CGT liability on the rise in nominal price of a flat which is not ownee-occupied and of the exemption from IHT of a residence bequeathed to descendants.
    Have you ever heard of “common consent” which predates state interference in inheritance?
    “another who thinks they have been ripped off for IHT?” I never said that I had been ripped off for IHT – my objections to IHT are not the amount we paid but the bureaucracy which requires executors to find the money to pay IHT before they can get their hands on the assets wherewith to pay it and, generally worse, the forms that one has to fill in which can run to well over 100 pages for the 95% of estates that do not need to pay IHT because they are too small. If one gets a solicitor to fill in these forms then it will cost thousands of pounds just to show IHT does NOT need to be paid.
    “None of which changes the fact you haven’t made any actual counter arguments outside of ad hominem responses.” is a blatant lie. I have pointed out the fluctuation in house prices, I have pointed out inflation, I have pointed out that bridging loans (“Probate loans”) are not automatically available, I have pointed out that “profit” is proceeds minus costs of the house not costs borne by inheritor.
    As you seem capable of reading everything except my factual counters to your mis-statements I have the right to assume that you can read those too. Hence I am saying your final sentence is a lie.

  39. @ john77

    * So a rise in the nominal price of a house that is less than inflation over the period is not an “excess profit”

    The rise in value for an heir who paid nothing in the first place for a property vs the current value after death of the owner is an excess profit in my opinion (irrespective of whether it falls into IHT).

    * dearieme introduced the IHT question pointing out that my initial response did not apply when the last resident died (which is not necessarily when the owner died). Tim was talking out CGT. So your claim that IHT was the original point was a blatant mis-statement.

    That is taken from my response to Chester Draws, John & you (john77) who were the people who commented on my original point (in response to John who brought up IHT in the very first post on this topic).

    * Have you ever heard of “common consent” which predates state interference in inheritance?

    Predates meaning in the past – see my point on past vs present in previous rebuttal.

    * “another who thinks they have been ripped off for IHT?” I never said that I had been ripped off for IHT

    That was in response to Pcar not you – https://www.timworstall.com/2020/07/quite-so-quite-so-13/#comment-1015992

    * I have pointed out the fluctuation in house prices, I have pointed out inflation, I have pointed out that bridging loans (“Probate loans”) are not automatically available, I have pointed out that “profit” is proceeds minus costs of the house not costs borne by inheritor.

    And I disagree with your view on these (perhaps not “availability” of probate loans, but it was one of a number of examples of options – “don’t do probate (and lose the lot), take out a probate loan or pay it in instalments”).

    It doesn’t mean I’m the one lying. In fact with your bull headed responses, I’ve formed the opinion that you are the ignorant one. Perhaps I’ll be proved wrong by Pcar agreeing with you that it is me after all…

  40. @ Mr Yan
    Or should I say “Humpty Dumpty”? There is (or was when I was born) a definition of “excess profits”: you choose to ignore it.
    To say that you disagree with my fact-quoting responses to your mis-statements is NOT an excuse for denying their existence. You *disagree* with the fact that house prices fluctuate!?! This isn’t China or Nazi Germany or Soviet Russia – we don’t disagree with facts. The term “negative equity” doesn’t come out of a middle-class SciFi book – it came out a house price slump.
    You say that “Probate loan” was one of three options but the other two were “lose it all” and “pay by instalments” – which requires one to pay 10% of *the agreed amount* within six months of the date of death which is almost always impossible as it takes months to obtain all the necessary data in an HMRC-approved format from banks, trustee companies, share registrars, creditors, debtors and, crucially, it takes months for HMRC to reply. So at the end of six months from the date of death there is no agreed amount – that reply merely demonstrates your ignorance, yet again.
    You said “another” to Pcar – which means to a native English speaker – that there was a previous one: looking through the thread and your reference to myself as one who didn’t not receive 100% of inheritable assets that could only reasonably be interpreted as that I felt “ripped off”

  41. @ Mr Yan
    For avoidance of doubt my first post *specifically* related to CGT, not IHT (“CGT on sale by owner-occupier is taxing an imaginary gain.”).
    State intervention is not necessary – except where the aforesaid state has mandated it – to determine inheritance. In cases involving trivial sums the state does not interfere and frequently does not even notice. The state isn’t even interested where no significant (significant to the state, that is) are involved: it tolerates executors following handwritten, unwitnessed, “expressions of wishes” by the deceased; there are laws about how to divide the estates of those dying intestate, so that it can expropriate the estates of those dying intestate without known relatives, but does nothing about the division of those of other intestates unless some would-be heir decides to sue. Common consent works in all the cases that we do not hear about – and there are an awful lot of them: thousands upon thousands every year. Many cases the deceased didn’t even put into writing and his widow tell her sons “Jim said little Billy should have such-and-such” which then happens.
    Incidentally, why do you disagree that inflation exists?

  42. @john77
    Spot on. Yan is making a fool of himself with his rabbit holing arguments

    @Mr Yan Vin-Dictive
    Well done, your whole argument was based on “You guys had to pay IHT and resent”. Then you are made aware, again, we didn’t you change tack to “Will have to pay so….”

    Pathetic. Try again and stop the ‘avoid CGT accusations”, they’re ad-hom uninformed, insulting and pitifully weak. Better would be don’t try again, admit don’t know enough and apologise

    You seem angry my brother and I bought a retirement flat for our mother, yet don’t consider why she was homeless. You’d prefer we let the ‘state’ care for and house her?

    Profit? You don’t consider we may have borrowed or consider dates?

    Due to 2008 Gov’t crash and now C-19 Gov’t destruction, still below price paid despite thousands spent improving it. Do we receive a Gov’t rebate?

    You’re in a hole, stop digging

    PS Still waiting for why Gross ~£5B is worth all the pain and suffering it causes when £10B can be wasted on an illegal, non-working Test & Trace App

Leave a Reply

Your email address will not be published. Required fields are marked *