Housing isn't a source of unearned wealth

Research was part of my job in the past. Google makes it a piece of piss!

@BIossomtoesI can’t see how that contradicts what I shared? It shows that 80% of over 65s own their home but I can’t see anything about what % that constitutes of total housing stock. The numbers I quoted were from a savills study but the fact that over 60s have around £6 trillion in assets is widely known so the idea around half of that is property seems likely.

I am always massively impressed and a bit intimidated by your command of facts, citations and statistics @BIossomtoes .

Not quite.

https://www.gov.uk/government/statistics/chapters-for-english-housing-survey-2024-to-2025-headline-findings-on-demographics-and-household-resilience/chapter-1-profile-of-households-and-dwellings

75% of housing is owned by over 50’s. 55% by over 65s. They built up equity in the boom growth years so , there’s a lot of unearned wealth sitting in housing.

CGT only payable if there was an increase in value of the inherited house, which is possible given Will disputes and probate delays.

BTW to avoid any confusion, i didn't inherit £1m, i don't even have a wealthy Aunt!!

My DD may well have to "pay" (from the estate) IHT (pension IHT changes) but as i've explained to her, the residual amount is still very significant.

As you say @jasflowers , you are fortunate, and even if you don't inherit everything, a million quid is still more than most people.

But if the house forms part of your aunt's estate and you sell it, there may be CGT due too, if you already own your own home, as it would be a second home. Don't quote me or rely on this: I am not a professional!

Well i never, i didn't know that.

But the point still stands, in my case, i still receive over £1m for doing precisely nothing at all.
Plus i don't pay any NI or higher rate tax at 45%

Of course, in the vast majority of cases, most people leave their estates to their children.

Considering we don't have property taxes upon sale (of the main home) i think its quite generous.

@Itchthescratch say that there was a period of 5 years during which the housing market is really sluggish and house price increases only just exactly matched inflation, rather than exceeding it.

Say person A and person B each have £400,000 to invest in year 1. Person A puts their £400,000 in a 5-year term cash investment product which guarantees an interest rate which will always match inflation (yeah I know there are inflation-beating options but this is to keep the maths simple) and Person B buys a £400,000 property in year 1 which they then sell after 5 years.

In the meantime, inflation is steady at 2.5% per year for 5 years.

Again for maths simplicity we'll say both A and B are higher rate taxpayers but not in the Addtional Rate band, and they've both maxed out their ISAs separately so that we don't need to fossick with ISA rules.

Person A's £400,000 investment earns £52,563 in compound interest across 5 years. The first £500 each year of savings interest is tax-free so they pay income tax at 40% on the rest so will pay a total of £20,025 in additional income tax on their investment income

Person B's £400,000 investment in a property also earns £52,563 in the difference between bought price and sold price, despite it being the same value in "real terms" as you put it. Under current rules the CGT they pay on that £52,563 is only 25% so they pay £13,140 in tax despite having had the same benefit from their investment compared to the cash investor.

If anything, CGT should be more, not less, but under the system you are proposing person B should pay zero tax on this part of their income because their investment "only" kept pace with inflation. Should the same be true for person A too?

@jasflowers your wealthy married aunt example is flawed because you don't carve out £1m before IHT kicks in, only £325k. The £1m exemption is created where a married couple pass their shared joint estate to direct heirs (children or grandchildren) in which case the IHT exemption is doubled and includes an additional £175k per deceased, assuming the matrimonial home is part of the estate.

Your tax-free maximum inheritance before IHT is £325k.

I am sure you won't be unhappy to know that 40% of the £2m you are inheriting will be taxed 40%. It's still a large amount as you'd receive £1,005,000 (60% of the taxable £1.675m) + the £325k.

Edit for SPaG

Whats the "it " that you are referring to here? And what are these "real terms" of which you speak - how are you calculating them?

I think that if housing was no more extending real terms, it wouldn't be so hard/impossible for many people to afford to buy.

Also, just because somethings regional doesnt mean it's not real.

Well i did say if cash buyers.

CGT is just 24% for a higher rate tax payer, 18% for std rate, minus allowances and capital expenses.

Anyone with significant wealth can avoid IHT, trusts, company structures, gifting over time.

But the main thing you re forgetting is the person on whose estate IHT is being levied is dead, they no longer care, they aren't paying anything.... the shroud have no pockets.

Lets say my very wealthy married Aunt left me £2m, £1m tax free, £1m @40% IHT... i pay or rather dont receive, £400k but i bank £1.6m, not a bad days work.

I agree that the price you bought an asset for should be subject to some form of indexation when calculating a gain for CGT purposes; that's just mathematical/financial reality.

I've never understood why IHT gets such a bad rap though. If I go out and work my arse off to earn, say, £300k, then the transfer of that cash between my clients and me is taxed by quite a lot. If I inherit £300k, though, that I've done nothing to earn, then the transfer of that cash between the estate and me may well not be taxed at all. Makes no sense, and for that reason I do think that inheritance should be charged as income in the hands of the recipient as opposed to being charged on the value of the estate.

And yes, economically the country isn’t doing well. We have no growth. The country does not become wealthier by overly taxing the middle classes.

It wont become wealthier by abolishing IHT!

Get rid of NI, roll tax into 1, remove cliff edges, pause the triple lock & invest that money. That would be a start.

Investment needs to go into the young & workers not older people.

Exactly

we are in process of moving and the costs are eye watering factoring in stamp duty

Earned, past tense of earn, to gain money through work. Owning a house isn't work, instead it's investment, therefore, it's unearned wealth. This isn't an opinion, just how language works.

Well we”ll have to agree to disagree.

That trustifarian will still be paying less tax than you though. That’s kind of my point. It’s so punitive the wealthy structure around it, with off shore companies and, um…. trusts!

And yes, economically the country isn’t doing well. We have no growth. The country does not become wealthier by overly taxing the middle classes.

And? The country is skint. It’s the recipient that receives the money and they’ve not paid any tax to get it. I cannot think of a better tax. And it just drives inequality. I get £600k tax free as an inheritance. Plenty of people get nothing. How is that fair? I am wealthy now but came from nothing and there was nothing worse when looking at houses to know that some trustifarian would come and out bid you on a home that your family would live just cause his grandad left him £500k. It drives resentment.

The research shows that people loathe CGT on housing and IHT because it makes you wealthy older people feel that they are of less ‘value’. That they thought they were worth £2m when they’re only ‘worth’ £1.6m. That they think they have ‘earned’ the £1m their house has gone up in value by when they’ve done absolutely nothing to ‘earn’ it apart from being the right age to buy at the right time. They’re not wise, just lucky. These types of people need to get a life!

Because primary residences are sold to buy another property more often than not, that has also increased in value at the same rate. So you’re not actually crystallising a gain.

IHT is paid by the estate, not the beneficiaries. Let’s say I save as much of my disposable post tax income as I possibly can whilst I’m working. All of that money has already been taxed at 45% and is sitting in my savings account. The fact that the government can help themselves to 40% of my post tax savings on my death is ridiculous.

And all it does is ensure wealthy people plan around it as much as possible.

ETA: IHT was originally devised to tax the landed gentry (Estate Duty, as it was called then) who didn’t pay any income tax. So it was never set up to be a double tax.

Re Garage not wanting to be PM. Ithink that's a fair point. It would involve too much work ( see also Boris Johnson, who was notoriously lazy and just agreed with the last person who spoke to him, reportedly). I mean, he doesn't even go to The Commons most of the time.

what is the justification for thinking houses should be CGT free and there should be no IHT? Don’t you think these windfalls deserve to be taxed? You haven’t earned them, you’ve done nothing for them. Why shouldn’t we tax them?

My property has rise £400k since Covid. No more than half of that could be inflationary. The rest is pure gains. I’ve don’t nothing to earn it at all: I’d far sooner they taxed take gain rather than stamp duty, which is a financial penalty for having the audacity to want to move to a property that better suits your needs. I’m in line for a £600k inheritance soon (£2.4m estate split 4 ways). I’ve done absolutely bugger all to get this money. Why should it be free of tax? All of my other income (that I worked long hours to earn) is taxed.

What is the context for OP starting this thread? Apols: I don't like the news lately so try to avoid it.

OP said:
I am just tired of people pretending that homeowners are sat on a load of unearned wealth that is ripe to be taxed. It simply isn't true for people that have bought in the last 20 years.

Has someone proposed raising council tax bands ? I get impression those have been frozen for 20+ years and don't reflect property values at all well now.

Property prices increase (or decrease) for multiple reasons. Areas become fashionable and prices rise, which has happened around us. People spend money out of earned income to improve or extend them, which we've done but even general rolling maintenance like painting the house and fixing the doors, windows and roof or replacing a boiler, requires spending money most years.

Properties owned by landlords are investments. When an investment is liquidated, CGT is due on any gain without taking into account inflation. That is as it should be. Presumably the landlord is benefitting from inflation via increased rents charged?

Alternatively, if you don’t want an asset that is protected against inflation then you could always just keep the money used to buy the investment property in cash in a savings account for 20 years and not pay any tax when you withdraw it. Your cash will be worth less after 20 years though. You can’t have it all ways.

Personally, I am just grateful we do not have to pay tax on primary residences like so many other countries do.

I’m with you on IHT though, I’m in the camp that it’s double taxation and should not exist.

Won’t necessarily go in care home fees as the next generation becomes more savvy

most people don’t go into care homes though