As the FT notes this morning:
Buy-to-let landlords in London who sold up in 2018 made an average gain of £248,000, underscoring the growth of housing equity in the capital over the past decade.
That compares with landlords across England and Wales who made an average gross gain of £79,770 when selling, according to research from Hamptons International, an estate agent.
Let me make three obvious points. The first is that average London gain is significantly bigger than many people's lifetime savings, even if they tried. The inappropriateness of this is staggering.
Second, this is about inter-generational inequality, of course.
And third, about fuelling inequality in general.
As well as, fourth, the capture of the commons for private gain.
But, fifth, let's also be aware that this is about a corrupted tax system.
I wonder how many of these gains are declared?
I wonder too what tax is being paid? I know there are higher rates for property gains, but there are also significant allowances for buy-to-let. And the result is invariably tax on these gains is paid at much lower rates than it would be if these sums were taxed as income. And given that the sole motive for this activity was profit for them to be taxed at less than the rate charged on earned income is not just insulting to those who worked to pay the rents on these properties, it's also plainly wrong as a social justice issue.
And yet there is no sign of an appetite from government to address this issue.
And so the injustice will go on. Because that keeps a minority in society happy. And it is that minority to which this government is biased.
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It is worth noting that the tax liabilities of buy to let landlords have significantly increased under the present government, with an increase in CGT to 28% (18% under Labour), relief for interest on borrowings limited to the basic rate, and reductions in main residence and letting relief.
And given that all property sales are reported to the land registry and the data is publicly available (e.g. on Rightmove) it is difficult to believe that there is much evasion going on.
Oh come on: it’s still fundamentally wrong
Sam Jones – Thanks for pointing out New Labour under-taxed property gains and whilst taxes on buy to lets have increased do you really think they are over-taxed relative to a graduate single-earner house hold with two kids, on a PAYE salary of £50K pa who faces a marginal rate of deduction of almost 69% (40% income tax, 2% ee’s NIC, 9% student loan and loss of £1,788.80 Child Benefit) over the next £10K of income?
But then if someone is a rent-seeking neoliberal why would they encourage hard graft in a paid employment over speculative gains!
What social purpose does a buy-to-let landlord fulfil? None that I can see. It’s simply a method to extort profit from people who cannot afford to get onto the property ladder.
I have personally seen evidence of buy-to-let landlords declaring very low incomes in the UK while living in lavish houses and servicing portfolios of properties owned by companies registered in tax havens. Secrecy rules mean that it’s difficult, perhaps impossible, to discover who the beneficial owners of the properties are but I have my suspicions. It should be illegal for any individual or business that is not registered to pay tax in the UK to own property here.
Many tenants, even teachers, nurses and other skilled professions, rely upon housing benefit and working tax credits to keep a roof over their heads. Housing benefit does not directly benefit such tenants. It passes straight through their hands and into the pockets of buy-to-let landlords, allowing them to bid the price of property higher, thereby justifying higher rents and so the spiral continues. Working tax credits are primarily necessary because housing is unaffordable.
The property price bubble needs to be burst and one way to do that is to outlaw the buy-to-let sector. The prohibition on new purchases should be immediate and a limited period, perhaps five years, could be allowed for landlords to sell their existing portfolios. After that, only not-for-profit housing associations and councils should be allowed to rent out housing. This would have the affect of immediately moderating the price of rents and housing.
In order to make housing more affordable, the price and availability of land for new housing needs to be regulated such that someone on average earnings can comfortably afford to buy or rent an average house. In the 1930s, just a few percent of the price of a new house was the land it sat on. Now it’s as much as two thirds or more and rising. The cost of land is obscene and, to a large extent, is driven by the price of existing housing which, in turn, is driven by a lack of supply and the inflationary affect of the buy-to-let sector. At present, someone needs to earn around twice average earnings to be able to afford an average house. This is patently absurd and is the root cause of low living standards, poverty and countless social and health problems in the UK. Decent, affordable housing should be a human right. By regulating the price of land and linking the price and rents of new housing to earnings, a benchmark will be established that will help to reset the prices and rents for existing housing.
If we can fix the housing market, the costs of housing benefits and tax credits will plummit. It will give tens of millions of people hope and a decent standard of living. Many social and health problems will be eased.
If these actions are taken, property speculators may lose out but that’s a price worth paying for the greater, long-term good of society as a whole. It should have been obvious to these speculators for decades that they are playing a risky game and that the bubble will eventually burst. If they haven’t diversified their portfolio of assets and have all their eggs in the property basket then more fool them.
Leeches, should be banned.
Leeches have a real medical use still, or so I am told
Read the blog post and report by the iea and state what is wrong with it, as it takes the opposite view to you on the taxation of landlords. Please don’t simply ‘shoot the messenger’ or try to discredit the organisation (people only do that when they can’t admit that they’re wrong and/or counter the substantive points in a logical fashion). Specifically, explain how the authors are wrong to conclude that private landlords are in fact facing huge tax discrimination. Incidentally, you also seem to think that when landlords have made a substantial profit, that that is immoral – and that they should be stung for it. What about when they make a loss? Should they then be bailed out? Also, regarding high earnings, what about footballers’ salaries? Should all of their money also be taken from them?
I admit I do not work to order and find it deeply unappealing that you think you have the right to instruct me.
If you want answers I suggest my book The Joy of Tax
Heaven forbid that you would want to read an article that disputes your logic..parasites the lot of em, especially those pensioners who through 40 years of savings choose a buy to let to supplement income in later life
I read as much I do not agree with as I do that I approve of
But not on instruction from anyone with your attitude
Or from the IeA who will not disclose their funding
Every business is allowed to deduct its costs BEFORE Taxation on profits. Its been the basic economic understanding for centuries. But that prat Ossey has decided to change it for only One class of business – landlords. Not because there’s Too many of them – which is becasu there’s Not ENOUGH Social homes being provided by Government.
Its that childish, reminds me of tripping up a guy just a ahead of you in a race. !
Buy a House with a mortgage, run it as a legal Brothel and you can claim the mortgage interest.
Let the same property to a family ( such that society – Govt can’t do ) and the cost of doing so become singularly and punitively Taxed above everything else.
People who defend this haven’t one iota of business sense.
Renting is not business
You clearly do not know the difference between the two
How is renting not a business?
Because it extracts a rent
And rents are not profits
This is very, very basic economics
Allow me to explain it to you ;
So Renting isn’t a business,.. because er- it extracts ‘ Rent ‘
So businesses ( Limited companies, in many cases ) Invest in property because of higher returns that in the bank.
because the level of their considerable expenditure ( 6 figures ) will eventually be exceeded by Income.
Excess Income above expenditure is Profit,
but your reasoning, a minority one, I’d add, is that because in Buy To Let, that Income is via Rent – the rent isn’t profit ???
So what is BTL then, a hobby, a game, a past-time ?
I don’t care if the mistake is commonly made. The fact is that extracting a rent is not a business. It is not an activity in pursuit of profit. That is a business. It is an activity in pursuit of rent. And that is, well, rent extraction
For two centuries tax law knew this. Rent was taxed under Schedule A. Profit was taxed by Schedule D case 1 or 2. Just because we have forgotten this does not mean the forgetfulness is right.
Section 24 of the Finance (No. 2) Act 2015 describes the letting of residential property as a business 17 times. It is not a hobby and, unlike an investment in shares or funds, it requires insurance, maintenance, compliance with laws and regulations, competition for tenants, responsibility for emergencies and repairs and detailed accounting records to provide the profit or loss from the enterprise, and sometimes litigation.
I don’t care if the mistake is commonly made. The fact is that extracting a rent is not a business. It is not an activity in pursuit of profit. That is a business. It is an activity in pursuit of rent. And that is, well, rent extraction
For two centuries tax law knew this. Rent was taxed under Schedule A. Profit was taxed by Schedule D case 1 or 2. Just because we have forgotten this does not mean the forgetfulness is right.