OECD Property Tax: More Bathtub Thinking?

Just a couple of weeks ago the UK housing minister suggested that we all get together with our mates so everyone can afford a house through the virtue of "mates mortgages"...

Just a couple of weeks ago the UK housing minister suggested that we all get together with our mates so everyone can afford a house through the virtue of "mates' mortgages". Despite their being a rise of Buy to Let mortgage products on the market of 35% - strangely no-one appears to have jumped on the mates' mortgage bandwagon.

This week – similar bathtub style thinking seems to have spread into the offices at the OECD (Organisation for Economic Co-operation and Development) in the form of new taxation ideas for property.

It would appear the suggestion is to do away with Stamp Duty (despite it being modified to encourage Buy to Let in the private sector) and scrap Capital Gains Tax (CGT) on the profits made on the sale of a property in favour of a taxation system based on Government estimated market values.

In laymans terms this basically means that all property, regardless of whether it is in use or not, would be subject to a percentage of tax payable each year, based on how much the Government thinks it's worth.

This might not be too bad if perhaps it was based on what you paid for the property – at least then you could roughly work out what your potential tax liability might be in the future – but based on what the Government thinks?

The Government has soundly proved over the past 12 months or so that it has no idea on how to sort the UK housing market out, or how it might even begin to get debt under control – so far it would seem the plan is to keep on lending, keep making it easier to borrow and finally tax everyone into bankruptcy.

I will concede that property tax right now in the UK is not ideal, and could do with a few tweaks here and there – but changing an entire taxation structure in the sector is not the answer, and won't actually generate that much income for the Inland Revenue anyway, aside from the enormous cost it will take to implement.

UK property prices have got to a point where they cannot be sustained or propped-up for much longer – wages aren't rising any time soon, and interest rates simply cannot be held down for much longer. Quantitative easing has only extended the problem further – and all that seems to be happening is more credit is being made available to try and stimulate the housing market, without any thought going in to how it will all get covered.

The answer lies in fixing the issue that started the problem in the first place – not patching-up the ever-multiplying problems the first issue has caused. Politicians and law makers pooling their ideas in some possible gymnologizing bathtub thinking party is only going to lead to more debt, despair and more annoyance of the general public.

It's a bit like putting oil in your car engine after it has seized solid and caught fire, and then expecting it to fix the problem. With all the wishful thinking in the world it isn't going to fix it.

If this tax comes in, it will really change the property investment world in the UK, adding a permanent asset value eroding constant to the mix that could spike or dive at any moment.

- Friday 22 July 2011

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