According to the FT research by buy-to-let lender Kent Reliance has shown that the value of landlords' property assets rose by £156bn in the past 12 months to £1.2tn. Rents rose to £53 billion a year. And new tax measures are being circumvented by buying properties in companies - which always looked to be a gaping loophole (deliberately created?) in George Osborne's supposed crack down on buy-to-let, which is likely to prove worthless as a result.
I have, as usual, a range of concerns. First, let's remember that income from buy-to-let is much more lowly taxed than is income from going out to work. The difference is, of course, national insurance, plus the ability to offset expenses that the individual householder, in a similar situation, does not have. The effective tax differential between buy-to-let and earned income might easily exceed 20%. It is absolutely impossible to say that the UK is a country where people who go out to work are fairly treated by the tax system when it includes such inequality.
Second, before anyone points out that not all buy-to-let rental income is taxable because there are costs to offset, let me make it clear that by far the largest part of those costs are mortgage interest, and that, course, does eventually give rise to liability to tax on interest earned, where the same differential arises.
Third, my research has shown that it is very unlikely that all the gains arising to buy-to-let landlords are taxed.
There are three real policy responses required. First, it is necessary to reinstate an investment income surcharge in UK taxation. We had one of these until the mid-1980s: income from what might be considered unearned sources (rents, interest, dividends, etc.) was subject to an additional 15% tax rate. This was justified on purely social grounds: there was meant to be a bias to work (and why not?). It does, however, have a purely pragmatic basis as well: horizontal equity in the tax system requires that tax be paid at approximately equal rates from what ever source it arises. This does not happen in the UK, and we have a deeply inequitable tax system as a result. This must be addressed.
Second, it is absurd that capital gains are taxed at a lower rate than income: again, the alignment of rates is essential. Nothing less will do, and at one time the Conservative Chancellor (Nigel Lawson) had the courage to do this.
Finally, of course, HMRC need the resources to trace all this taxable income, and the resulting gains. But, over the next few years every single local office in HMRC will be shut. How is that going to help this process?
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The Tories represent the ‘property’, housing portfolio class with some two thirds of the Party with their greasy fingers in ‘unearned increment’ from property and probably about a third of the Labour Party (based on memory so can’t give reference).
So the political will to even talk about this never mind legislate is not there.
We need a tax system here which says: A house is to live in FROM where and IN where you are a productive member of society. The box and land it is on is not a vehicle for extra income.
I’ve ranted about this before but the fact is this genie has been out of the bottle now for nigh on 40 years and probably can’t be put back in. So it will hamper all attempts at real change and sustainable growth. We need a courageous state to stamp on this and bail out the losers and tell the rest of the housing bubble beneficiaries to suck eggs.
Even the late and great Michael Meacher had four properties in London, can you imagine the amount of money he earned from that in his sleep by doing diddly squat? (He might have had an arrangement where he calculated all increase on rental value and gave it to charity for all I know so forgive me if I do him an injustice-but I doubt it, somehow, I know too many ‘socialists’ who succumb to the greasy finger in the pie).
I quote yet again Gordon Brown in 1997:
‘‘I will not allow house prices to get out of control and put at risk the sustainability of the recovery.’
Labour MP’s need this branding on their foreheads.
I’m in a good mood this morning.
As most champagne socialists admit by their actions, it is much easier to join them (on the right) than beat them.
As a recent article in the Guardian noted, the register of MP’s interests at Westminster is far from complete and transparent to public scrutiny.
http://www.theguardian.com/commentisfree/2016/jun/07/mps-british-politics-transparency-register-of-interests-finances
Michael was a member of the Labour Land Campaign.
My joint paper on how to implement LVT imposes a higher rate on landlords than homeowners – the same as businesses (which is, of course, what landlordism is) – and nothing on tenants. Business rates are far higher than Council Tax rates, which is understandable given that your own home does not generate income. Both Business Rates and Council Tax are paid by occupants rather than owners. I think this is unique in the world. Thus we see the owners of £200m houses in Westminster paying less CT than the tenant of a £599 flat in Weymouth.
This is the gross anomaly in our tax system.
Despite his libertarian credentials , I am sympathetic to Fred Harrison’s fears expressed in his book ‘The Traumatised Society’ that the Land and property issue is a driver of a dynamic that not only makes economic recovery impossible but could lead to war.
Harrison’s work does overlap with the Left in this area. Worth watching him interview Michael Hudson (Trotsky’s godson!) as an example of the Left and libertarian right crossing paths!
http://www.youtube.com/watch?v=WsCqpvt3FqM
http://www.theguardian.com/money/2016/jun/10/buy-to-let-landlords-likely-to-increase-rents-to-offset-higher-costs. As my colleague commented on Facebook: “Imagine how low rents would be if landlords weren’t subjected to any extra costs!”.
Unearned? Given your promoting a unconditional basic income its hypocritical? Not all landlords are the same some manage themselves others let others manage comparing the two as the same is not fair. But lets just assume they do nothing, given jim callaghan once called for a ‘age of leisure ‘ and the advance of technology, the aim should be everyone living like kings. Comparing owner occupiers with buy to let is simply not right. Unlike owner occupiers Buy to let you have Capital Gains Tax and at 28% is hardly low. They pay tax on the rent unlike owner occupiers who now can get up to £7,400. Then of course owner occupiers don’t have to go through the lengthy and costly eviction process. Then there is ‘all’ the regulations, which as far as I know don’t apply to owner occupiers.
What about being a musician is that unearned? After all you would say how is it fair that someone who works 9 – 5 in a supermarket pays the same rate as a musician that just does 1-2 hours?
This is so ludicrous I am not responding
The heated exchange between Sam and Richard exemplifies my reason for choosing not to use terms such as ‘unearned wealth’, ‘rent seekers’ etc. What followed from Richard using ‘unearned sources’ (whilst noting he qualified its use with ‘what might be considered’) as far as I can see accomplished nothing but entrenchment. Hope neither of you minds my having a go…
First, in defence of landlords:
My cooker blew the electrics in my flat tonight. My landlord took my call, interrupting his supper and organised a Sparks to come out and fix it. Less than three hours later my own supper is cooking 🙂
I saw a ‘Rented by…’ sign outside a house on the way home this evening and realised I can be confident its occupants have good reason to be in this location and are using the space effectively – otherwise they wouldn’t choose to pay full market rental value to live here in a house of that size. Same can’t be said for owner occupiers or businesses who own their own premises – particularly if they’ve been there for decades. If there was no availability for businesses and residents to rent, London would grind to a halt. So thanks landlords 🙂
I’ll get to why rent (specifically, economic rent) can be classified as ‘unearned’ but if you consider buy-to-let landlords who have bought in recent years and are paying a high mortgage, most of the economic rent is actually going to the bank (though if the system stays the same they’ll benefit from it eventually). There is a proportion of rent paid to owners / maintainers of rented buildings (the bricks and mortar) who these days (rightly in my opinion) need to deal with regulations that protect their tenants. Add to that the problems of tenants who abuse properties and the nightmare (from both sides) of the eviction process and I can see why landlords often feel they’ve really earned their rewards. Landlords who bought in recent years also (even though they may not have really considered it) face the risk of a massive correction in prices. Tough if it doesn’t work out.
Now before we get back to economic rent I want to state clearly I absolutely disagree with the leftist grouping together of rent, interest, dividends etc. (basically anything that isn’t earned by labour) and calling it unearned. The right conflates land and capital together so they can say they’re pro-business and pro-‘striver’ whilst quietly protecting the landed. The left do it because they’re so blinded by ‘injustices to labour’ that they end up also bundling returns to land (rent) and to capital (interest), thus also, though inadvertently, supporting the status quo.
Economic rent is a technical term, comes from classical economics, and it is that which defines what is technically unearned (not vice versa).
Economic rent on land is the easiest to illustrate: Land has value, and orders of magnitude more in some locations, for a plethora of reasons: law and order, employment opportunities, public services, cultural, social and many more reasons. Basically, anybody living and active in a constructive way contributes to the attractiveness of a location. Even those not earning, for instance looking after daughter’s kids so she can go to work, doing volunteering or simply saying ‘hello’ on the street contribute. Increased attractiveness leads to increased demand, demand to competition and competition determines the market rental value (sales value more-or-less being a derivative of rental value). Home-owners, business premises owners, landlords DO NOT, by virtue of being land owners, contribute. They may contribute the same or more than their neighbours but the increase in the value of their land and the rent they receive due to location (the economic rent – as opposed to the proportion of rent that occurs because of the quality of the building or the service provided as a landlord) is created jointly by the community. By this reasoning, given the economic rent a landlord receives does not occur as a consequence of his or her efforts as land owners but by the efforts of us all jointly – calling it unearned is not unreasonable. Just as a descriptor it is neither an insult nor a put-down. It is an accurate way of classifying the phenomenon. However, given the general hatred of landlords as a class I find often it is used to rile ‘the enemy’. Not my style, as you can see 🙂
Let’s step back from the recently-purchased buy-to-let scenario described earlier where most of the income goes to paying off the mortgage and where this can be a perfectly sensible choice (for instance, for anybody who sees what’s ahead in terms of pensions and wants a back-up plan)? Let’s look at those who have been landlords since generations – such as the big 5 trusts who own swathes of the most expensive land in London? It is easy to see that other than a few bits of maintenance money they need to pay out ongoing the rental value Londoners jointly create (UK taxpayers everywhere by contributing to public transport etc. and anyone worldwide who provides goods or services to London) simply mounts up in their bank accounts by the million whilst the ‘capital gain’ (a misnomer, given land is technically not capital) continues to grow by the billion to pass on to the next generation. However, I am confident in this age of communication and technology maybe by another generation or two, we will have a system whereby everybody pays location rent. In this scenario, everybody has the incentive to the effective use of land. According to Georgist theory, this will result in a massive increase in the availability of land and subsequently, huge improvements in pay and conditions of labour). In addition, there’s all that collected rent available to split equally ongoing between all those who create it, with enough available such that an equal deduction can be made from everybody’s dividend to pay for governance (thus negating the need for taxes on production).
Thanks for the opportunity to have my say 🙂
And all you show is that the vast majority of the return to land is unearned
It has to be: it is a location price
Fixing the fuses makes no difference to that
Sorry, but I am entirely happy the description is fair
As for Georgist theory, I am sorry but it is cloud cuckoo land to think we need no other taxes. That is impossible in a modern economy. I am not interested in debating impossibilities
I would like an LVT. But as one of about 14 taxes (rather like a bag of golf clubs, I am told)
“And all you show is that the vast majority of the return to land is unearned”
Actually, that’s all you chose to take from what I wrote. I didn’t dispute the correctness of its use in the context of land. I was suggesting it is divisive and unhelpful – as your exchange with sam illustrates so well.
In a modern economy, an increasing proportion of wealth goes to rent – much more so than in George’s time. If his Law of Wages is also correct we’d also (by the fact of everybody having to pay rent and the consequent availability of land) see an end to unemployment and better pay and working conditions, potentially effectively halving the public revenue required (the half which deals mitigates poverty).
I would happily have accepted from an organisation that calls itself ‘tax research’ if you’d responded with: ‘there is insufficient evidence that George’s Law of Wages has any merit’.
That you choose, instead of engaging, to say I’m in cloud cuckoo land – just as you called Ben’s post ‘unworthy of response’ shows nothing but how highly you rate your own opinion.
Given divisive is your way, I’ll give your blog a miss in future.
You cannot accuse me of ignoring rents
Or the rentier economy
Or the risks in in it and the need to tackle it
I have written acres on the issue
But I do object to focus being given to a single rent and the suggestion that addressing it would solve all problems
The suggestion made little sense when George proposed it
Now rents have proliferated it makes none at all
It is only the location value that is unearned. Not the value of buildings and improvements. Nobody is saying landlords are “rent seekers.” Just that they did not create the public infrastructure and location on their own, the government did.
Thanks Landlords-for contributing to the housing bubble. If I was earning money hand over fist for doing next to diddly squat, I’d leap up in the middle of my supper and sort your cooker out. How generous!
Gareth
Your comments seem reasonable but omit one key point. This is that any human being will, naturally, find it unpleasant & offensive that certain people can live, without working, on the backs of others. Judaism, Christianity & Islam all share a revulsion for the capitalist. Its one of the few things they have in common.
“(The Vitenam war)n is white folks sending black folks out to fight yellow folks to defend their hegemony over the land they stole from red folks in the first place”
What was so ludicrous? Pointing out owner occupiers don’t have CGT? Or the bit about all the regluations? The lengthy eviction process? I thought all my points were eminently valid. I would go further forgetting the very valid point about people moving, owner occupiers having no cgt for literally doing nothing, where as landlords have all maintenance. Having said that, given you also want to remove cgt exemption for main home, I presume you didn’t voluntarily pay it when you moved?
Regulation is tiny
CGT is heavily evaded, and is an appropriate charge on unearned gains
You wholly ,miss the reason for principal private residence relief, very clearly
And you obviously have no understanding of unearned income
Or musicianship, come to that
More time wasting will be deleted
Regulation is tiny? So if a tenant chooses to not pay rent you have to wait around 6 months to evict them? Then they can circumvent section 8 by paying just enough rent before court proceedings to suspend the case (and people wonder why section 21’s are popular). If a landlord signs a tenancy and if the tenant wants to stay there is nothing to stop that (for the duration of the tenancy) but if a tenant doesn’t they can simply give (I think) 1 months notice and landlord has to accept it ( yet people talk about tenants not having security of tenure)
So if a tenant merely wants to wreck the property a landlord has to put up with it, if it was a ordinary member of the public the police could get involved. Ie there is no emergency clause eviction them immediately on that ground . I dunno about you but requiring landlords to get a HMO Licence (and the work that entails) Eletric safety certificate, Gas Certificate, Legionaires certificate, EPC certificate (and the cost of upping the rating) etc etc.
CGT is heavily evaded? Thats news to me I would have thought it may be hard to explain how such a ‘windfall’ came to be in said bank account?
Banks have no duty to report to HMRC
And don’t
Nor do solicitors
Debt recovery is just one of these things. Tried running a real business?
You are just wasting my time
Don’t bother to respond
Well I dunno HMRC probably can look into bank accounts and if there is unexplained funds there they could investigate? Afterall there is the connect system these days? Yes, there is debt recovery but the cost of going to court could easily be more than arrears and as most landlords only own 1 property they are hardly flush with the funds to repair damage that can easily run into tens of thousands and a court case and once tenants are gone the council tax on top. Tried running a business? No, I have not have you? More importantly Have Mr Mcdonnel/Corbyn? Don’t think I have heard any news report about them being entrepreneurial unlike me they are in effect running to be administrators of the country? I would add ministers of all parties are hopeless unqualified (such as Miss Morgan and Mr Burnham for starters) for the posts they hold.
So you have not run a business (and I can assure you I have, successfully)
And you have no clue of the powers HMRC have
And still have no clue what unearned income is
Why not go and find out before shouting so loudly?
Sam
I certainly would encourage any of your tenants to destroy any of your properties.
Not having a go but you do seem to epitomise evil, imo.
Can I ask a simple question: your generation and older Richard are obsessed with home ownership. What is the problem with renting? And if the answer is “nothing” then you need buy to let landlords.
Yes there is an issue with house prices but there is also a fundamental culture issue whereby people aged 40+ focus on home ownership as the be all and end all. It really isn’t!
I am not obsessed with ownership, and I have, of course, rented
But ownership provides stability that renting cannot (or at last, does not) and stability is good for children, communities, relationships and so much more
Ownership per se is not my issue: stable society is
But someone owns those homes – who better than those that live in them?
Well said Carol
Subject to an LVT, of course
WE don’t need buy to let scroungers-sorry , I mean Landlords. During 2002 there was a massive rush to get into the buy-to-let market which contributed to rent rises and general house price bubbling (though some were bitten during the crash-I weep tears for them).
Anyone who can think that there’s nowt wrong with buy-to-let is in cloud cuckoo land. The housing issue will take decades to resolve and is an inter-generational dead weight that is visibly strangling the young.
The question isn’t of ‘ownership or non-ownership’ it’s about affordability and the credulous level of damage this asset bubble is doing to our society, fuelling resentment and xenophibia.
This is too simplistic
There us a need for rental property
There isn’t a need to subsidise landlords
‘There us a need for rental property’
Agreed, but in the social sphere, where the rent goes BACK into housing not to someone paying for their daughter’s private education. Does it really matter whether we own the damned box or not -it is somewhere to live FROM where we can be socially useful.
I believe in mixed economies: I am not sure that there is no role for well regulated private landlords at all
Your point does not make any sense. So stability comes from ownership? Or to put it another way, it brings forced stability as one is lumbered with a huge debt to repay for the next 25 years of their life? You live in a long gone age Richard!!!!
Maybe
But as I would like to put it, ownership is the worst form of tenure except for all the reat we have tried
I think the other point is that for the younger generation, your generation and older are complete hypocrites. You’ve enjoyed exceptional capital growth and sit from your ivory towers talking about how great ownership is. Well of course when you’ve enjoyed hundreds of percent growth in property and won’t sell your houses to move to smaller properties!!!!
I have just downsized
What hypocrisy are you accusing me of?
What we desperately need is Council Houses. Remember those things Margaret Thatcher got rid of ?
“Rumble, young man, rumble, Waaah”
I agree
This was justified on purely social grounds: there was meant to be a bias to work (and why not?).
Why not? Because jobs for the unqualified masses are disappearing, If you perchance have the good fortune to inherit capital of course you would invest in propery brcause the haves now belong almost exclusively to the rentier class whose development is being encouraged Western hemisphere -wide. As opposed to going through the Calvary of starting a business whose thicket of pc regulatiobs at every turn are there to discourage you.
And those who do not have patrimony just live on bennies and deal a few drugs until they get banged up and ” ensconced” into the warm embrace of the prison system with three meals a day a roof and entertainment .
That s why not
I have the disadvantage when moderating if not being able to see what you think you are replying to
But you are clearly using a false name and email so I am deleting all of your other comments
Strobe Talbot
Not a bad post. I’d like to think that even as we are compressed by Cameron & Osborne into the neo-liberal, capitalist way, there is still some middle way between inheriting familial wealth & Winson Green!
This post seemed to hit a raw nerve Richard, perhaps because their are many different types of landlords and land rentiers, of which some may have been offended by being lumped together perhaps?
In my experience, there are some very hard working and honorable landlords who usually own a very small number of properties and have a good relationship with all their tenants and provide an excellent service for a just reward. They know they will eventually see a capital gain but are in for the long term and are members of the community in which they own/rent the properties.
But I’m not sure that this type of landlord/rentier is the type that is being targeted by any proposed tax changes, and there is an argument to treat them differently by the number/value of their rented properties.
The real targets should always be the large scale landlords and financial rentiers who do very little themselves for their very large returns, as they own or finance many tens/hundreds/thousands or even millions of properties (in the case of the largest mortgage providers) and have armies of people employed to make the system work to maximum value for their own financial benefit (often very lightly taxed in comparison to real earned income)
I think you summarise the situation well
If landlords had to pay a fee for the benefit they get from the land they own (the value of which is created by taxpayer funded local and national facilities) there wouldn’t be so many of them. There is a demand for rented homes, but families generally need the long-term security of owning their own home. LVT would remove the speculative, unearned element, because buildings require constant maintenance and replacement to retain their value.