Housing isn't a source of unearned wealth

[Itchthescratch]

If you bought in the last 20 years.

Houses are now worth the same as they were worth 20 years ago in real terms. We need to get over the idea that every homeowner is sat on a money making asset and therefore is in a preferential position to pay loads of tax on all this non existent unearned wealth. Too many people don't understand how inflation works. £1 in 2006 is worth £1.65 today. House prices need to go up 65% just to be worth the same in real terms.

Oh definitely! I was just making the point you can spend hardly anything & still make money. It was luck. The house i’m in now is a different story.

@Itchthescratch IHT does not restrict who you can leave your estate to. Estates are liaible for IHT, not people, so all it means is tax will have to be paid before beneficiaries get their cut. Yes that may mean a house has to be sold, bit unless you leave it to one single person it will probably be sold any way.

Most people do not leave eatates large enough to pay much, if any, IHT.

But the same rules would apply if they had invested their money in stocks and shares. Why should landlords be any different?

if you are leaving a house worth £1m plus that isnt a typical 'hardworking family making sacrifices' IMO

My family did work hard but they just got lucky that the cheap bit of London they could afford went through huge gentrification.

All depends on where you live though. £500k to 1mill in the south east is far less property than £500k - 1mill in other areas of the country

But it’s still a lot to inherit. Prices need to stagnate & wages need to catch up. London hasn’t seen much growth in years because affordability does matter. Much of the property market was fuelled by equity gains & cheap borrowing.

A 500k mortgage incurs 100k of additional interest at 1.5%, at 5% it’s 380k!!!!

It’ll mostly go in care home fees anyway, which have to be paid before anyone inherits anything.

An average house value of £270k, of which 20k (I think) doesn’t go on care home fees. An average care home cost of £1250 per week. So two years for a couple, almost exactly. That’s it. All gone.

Still unearned by beneficiaries. Still choices. IHT still somewhat redistributes inherited wealth.

Looks like no one will inherit anything then. Except care home owners.

I had baked beans and some milk chocolate digestives for £1.00 on sale at Co-op. According to some, this makes me privileged.

Sorry, my daft mistake - THEY paid 1% of what dd paid - so £3k - as dh found out after a good old nose on the Land Reg.

Won’t necessarily go in care home fees as the next generation becomes more savvy. Sell your house, rent and enjoy the money, passing it on early. It just requires a bit of planning, obvs you don’t know when you’ll due but if you start early enough it should work out pretty much.

I’m no CGT expert. I haven’t looked at if since I did my tax exams but if used to build in an indexation allowance which indexed the purchase price in real terms to ‘todays’ values. It’s been done away with though for some years, replaced by goodness knows what, but the mechanism to index gains has been used in the past.

And if you make a gain not a loss you can set that against any other capital gains you make in that year, you don’t get cash back.

It’s not difficult for the government to stay ahead of these “smart ideas”

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

most people don’t go into care homes though

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.

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.

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.

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.

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.

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.

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!

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.

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.

Exactly

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

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.

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.