Yorkieabroad

Heard a whisper that the UK govt are considering CGT on sale of primary residences as Gordon Brown has screwed up his budget and is looking at a massively growing deficit. Talk I heard didn't mention any minimum sales prices before the tax was levied, though I guess a very high floor could limit potential political damage. Nor did it confirm a rate, but suggested 40% !!!!

Could this be a planned 'leak' to judge public opinion (as the govt seems quite keen on doing)? Or could it just be a cynical attempt to trigger a landslide of sales from owners looking to take profits before the tax, hoping that this would bring about the long-prophesied property crash? Strikes me that this would alienate an awful lot of homeowners, but pretty much guarantee a vote from those struggling to get on the first rung of the property ladder.

Anyone heard anything about it?

Pulaski

The problem is, if he triggers a crash is that there is one absolute principal that would cause a problem. Anything that is taxable as a gain must also be allowable as a loss, and so anyone who bought house at or near the peak of the narket will face a huge loss if they sell which means that (i) many will not sell because they can't deal with the negetive equity (which was the situation in the first half of the 1990's) and those that do will have huge losses that they can carry forward for ever thereby not having to pay tax on any gains in future years. Not only that, some people would see a crash as a prime opportunity to buy investment properties.

My take on this is if they are going to do that for political reasons they are playing with fire.

Yorkieabroad

But if people have owned their houses for more than a couple of years they must be sitting on huge positive equity, and the fear must be that some would try to take that 'profit'....also there is a huge sector of "investment" ie buy to let property that could be dumped back on the market pretty rapidly for the same reason, especially as rental yields are struggling. Market would have to fall a loooong way for people that bought more than 5 years ago to face negative equity...

But if they are doing it for political reasons, I'd say they're not only playing with fire in one hand, but juggling tnt in the other!
I suspect it is an opinion tester, and they will pull in the horns and quietly forget it. Or at least I hope they do!

Pulaski

If you look at any graph of investments, not just house prices, I am certain that prices fall further, and often more quickly, than they rose in the immediate run up to the price collapse.
And do what until the price collapse comes? .... Live in a tent? .... And what if the price collapse doesn't come?
But these guys are already subject to capital gains tax. Granted some might be forced to sell, but I bet that many wouldn't, and in fact a sharp downward move in prices might actually encourage speculators into the market. I for one would consider buying property in London as an investment if there was as big a shake-out in the price of housing in London as there was between 1990 and 1996.
True, but you're a brave man to bet that it could never happen! The history of investment is littered with sure bets and fool-proof investments. History suggests that there is no such thing.
I think you're right.
I agree, as it would be ugly for the British public, and sadly too high a price to pay even to get rid of Tony and Gordon, the "tax and flush" duo.

Yorkieabroad

If you look at any graph of investments, not just house prices, I am certain that prices fall further, and often more quickly, than they rose in the immediate run up to the price collapse.

Maybe so, maybe not. But if you are saying that prices could drop to levels last seen say in the early 90's, I'd probably be sceptical of that. Or maybe thats hopeless optimism on my part...

And do what until the price collapse comes? .... Live in a tent? .... And what if the price collapse doesn't come?

Or move to a cheaper area. Or go travelling. I've got 4 friends who in the last year have sold up in London and done exactly that. The other alternative is to rent for a while and pray for the crash. Ballsy play though - could end up pouring money down the rental drain waiting for a crash that never comes....

But these guys are already subject to capital gains tax. Granted some might be forced to sell, but I bet that many wouldn't, and in fact a sharp downward move in prices might actually encourage speculators into the market. I for one would consider buying property in London as an investment if there was as big a shake-out in the price of housing in London as there was between 1990 and 1996.

They are subject to CGT, so the CGT on primary residence doesn't affect them. But the market prices may - if they think a crash is coming, I think a lot will sell, preferring to take the gains less tax of the high price than be stuck with a lower valued property and have to wait for the market to recover to realise any gain. Personally I think property should be viewed as a long term investment, but I think a lot of people have jumped onto the buy to let bandwagon hoping for a fast buck as prices have been rising rapidly. They are the dangerous ones..... As you say, falling prices have to be seen as a buying opportunity

True, but you're a brave man to bet that it could never happen! The history of investment is littered with sure bets and fool-proof investments. History suggests that there is no such thing.

Absolutely right - never say never. But with such an imbalance of supply and demand, personally I can't see prices crashing to say 1/3 of current values in some parts of London, which is what they would have to do to achieve prices 5 years ago. Unless someone pulls some silly trick such as introducing new taxes......

I agree, as it would be ugly for the British public, and sadly too high a price to pay even to get rid of the Tony and Gordon "tax and flush" duo. They've done enough to get rid of themselves. Or at least they would have if there was any credible opposition!!

Pulaski

Sadly that's a big "if".