Should we have some CGT on the family home?

[Brendan Burgess]

If you don’t have wealth you have to buy access to it from after tax income. If you have wealth you are not taxed on it at all. If our objective is to have a fair and equitable taxation system then we need to significantly increase property tax on PPR’s while at the same time reintroduce mortgage interest relief for PPR’s.

Purple made the above point in another thread about how we tax income and don't tax wealth.

I support the Local Property Tax.

But I wonder should we review the CGT exemption on the PPR.

I don't think we should treat it in exactly the same way as any other investment, but I don't think it should be entirely exempt either.

Those of us who were able to afford homes have accumulated a fair bit of wealth. Some research suggests that many more people will never be able to afford their own home.

Could something be done to balance the two out a bit?

I certainly don't see why someone living in a €5m home should get full exemption from CGT.

Some options
1) Charge CGT on the market value of the property on the death of the owner. This would be essential as most people stay in their family home for life. Without this, there would be no benefit in introducing a CGT on the PPR.
2) Limit the PPR exemption to a lifetime figure of €200k. That is still a huge exemption.
3) Roll over any CGT liability on the PPR if the seller buys a new property. This would be necessary to avoid any disincentive to trade-up or trade down. The CGT would be a charge on the new home and payable on death.
4) Maybe introduce an incentive for people to to trade down.

Indexation should be introduced, so only real gains above the normal level of inflation would be subject to tax.

5) Would there be some way of ringfencing the tax generated by this measure to help younger people get on the housing ladder? For example, abolish VAT on starter homes bought by FTBs? And fund this through the CGT measures.

Brendan

 

[Purple]

In principle I like the idea of taxing people on unearned capital gains. It's like a windfall tax. On balance I'd rather just see higher rates of property tax with no exemptions but the option of means tested deferrals or partial deferral. That makes receipts less volatile.

I like the idea of using the receipts to help first time buyers and/or existing mortgage holders.

 

[Bow tie]

One PPR, for social and stability purposes should never be treated via CGT.
A person shouldn't be forced down specific pathways by policy, and out of their PPR if it has become too valuable over a lifetime.

 

[Brendan Burgess]

A person shouldn't be forced down specific pathways by policy, and out of their PPR

I am not suggesting that anyone should be forced out of their PPR by charging CGT on it when it is sold.

 

[Brendan Burgess]

On balance I'd rather just see higher rates of property tax

Hi Purple

I felt it was very tough on people who had recently bought a home and were struggling with mortgages and negative equity to pay property tax. I would prefer them to pay if they sold the house at a profit.

Brendan

 

[Purple]

Hi Purple

I felt it was very tough on people who had recently bought a home and were struggling with mortgages and negative equity to pay property tax. I would prefer them to pay if they sold the house at a profit.

Brendan

That's why I proposed revenues from such a tax be used to make mortgage interest payments tax deductible in another thread. That said all taxes can be unfair to someone. I find taxing someone who is trying to save to buy a house at a rate of 52% more unfair.

 

[NoRegretsCoyote]

One PPR, for social and stability purposes should never be treated via CGT.

I agree. Big social advantages from owner occupancy.

The problem is the very generous CAT threshold for inheritances.

 

[Brendan Burgess]

I agree. Big social advantages from owner occupancy.

Hi Coyote

Agree with the societal advantages. My proposal would boost owner occupancy by funnelling the money back to help people get on the housing ladder.

Are you fully opposed to CGT on the PPR? On all PPRs? Even homes worth over €2m?

Brendan

 

[PMU]

You are essentially advocating an additional tax on people who are ‘asset comfortable but income poor’, i.e. people who have purchased a house from saving the deposit, and subsequently through mortgage payments. Later in life, assuming they have paid off their mortgage, they have secured home ownership and can live in their home mortgage free. Unfortunately, by this time and in retirement, most households have few, if any, other income generating assets, and are reliant on pensions for their income. So you are not talking of taxing rich people – just ordinary folk on pensions.

For the average family in Ireland, when you own a family home you are not wealthy. You have used your savings and a fair share of your post-tax income to buy on margin and with high transaction costs, a one-trick pony – a risky illiquid indivisible non-income generating asset, that produces one ‘service’ (i.e. shelter), and requires continued expenditure on insurance and maintenance. You can’t calculate the total return on home ownership in the way you can on income generating assets. And except for insured perils you can’t hedge the financial risk of owning a family home, it’s just not like other assets. It’s not ‘wealth’ in the same way as owning equities or bonds.

 

[noproblem]

Interesting topic this. There's no doubt some people are (what I would term) experts at accumulating a large amount of money from no taxes being payable on their PPR when selling. How many houses can someone buy and sell and take profits from as a PPR before the authorities take action, or should they at all? I do know of quite a few people in 2 major cities who have bought and sold (moved) 3 and more times in the last 20 years while making one hell of a lot of money from doing so. Yes, they seem to have done nothing wrong, some would say they played the system as it stands and were substantially rewarded. How many times can someone buy and sell like this before the revenue/goverment opens their eyes to what I see as a flaw in the system? In instances like I mention a substantial tax should indeed accumulate to the state from the sales, but how does one go about not discriminating against others who buy/sell? Tricky subject and no doubt will rise some people.

 

[Purple]

You are essentially advocating an additional tax on people who are ‘asset comfortable but income poor’, i.e. people who have purchased a house from saving the deposit, and subsequently through mortgage payments. Later in life, assuming they have paid off their mortgage, they have secured home ownership and can live in their home mortgage free. Unfortunately, by this time and in retirement, most households have few, if any, other income generating assets, and are reliant on pensions for their income. So you are not talking of taxing rich people – just ordinary folk on pensions.

People with low incomes can be rich. Income and wealth are not the same thing.

For the average family in Ireland, when you own a family home you are not wealthy.

You are in many cases if you own your own home.

You have used your savings and a fair share of your post-tax income to buy on margin and with high transaction costs, a one-trick pony – a risky illiquid indivisible non-income generating asset, that produces one ‘service’ (i.e. shelter), and requires continued expenditure on insurance and maintenance. You can’t calculate the total return on home ownership in the way you can on income generating assets. And except for insured perils you can’t hedge the financial risk of owning a family home, it’s just not like other assets. It’s not ‘wealth’ in the same way as owning equities or bonds.

The point is that when you own your home you have much lower ongoing costs. If you are renting you or paying a mortgage you are doing so out of after tax income. People in that position, especially if they are buying now, have a very high cost to essentially use someone else's capital. That's where conflating income and wealth is a problem.

 

[T McGibney]

The point is that when you own your home you have much lower ongoing costs. If you are renting you or paying a mortgage you are doing so out of after tax income. People in that position, especially if they are buying now, have a very high cost to essentially use someone else's capital. That's where conflating income and wealth is a problem.

Apples and oranges analysis.

If you're renting, you don't have to worry about the cost of ever replacing the roof, or the windows, or the boiler, or the insulation or a hundred other things.

If you're in social housing, your housing costs can almost approximate to nil. There seems to be plenty of high earners enjoying this benefit, including at least one currently serving TD.

And if you buy a new build, you're not using someone else's capital, whatever that means.

 

[Brendan Burgess]

So you are not talking of taxing rich people – just ordinary folk on pensions.

Hi PMU

I am proposing to tax the gains from selling a house. I would like to see people paying tax on their gains rather than as at the moment, ordinary people paying Local Property Tax on on ongoing basis.

Brendan

 

[Sarenco]

In the US, if you realise a capital gain on the sale of your main home, you can only exclude $250,000 of that gain (or $500,000 if married and filing jointly) for tax purposes. This exemption is only available once every two years.

I always thought it odd that our PPR Relief is completely unlimited.

 

[Purple]

If you're renting, you don't have to worry about the cost of ever replacing the roof, or the windows, or the boiler, or the insulation or a hundred other things.

Rents are higher than the cost of ownership.

If you're in social housing, your housing costs can almost approximate to nil. There seems to be plenty of high earners enjoying this benefit, including at least one currently serving TD.

Yes, that should certainly be addressed as well. Social housing should be subject to a needs assessment every 5 years. If there's one person in a 3 bed house they should be moved, it doesn't matter if they've lived there for 30 years. Income should also be taken into account much more.

And if you buy a new build, you're not using someone else's capital, whatever that means.

You're using the banks capital. That's what a mortgage is.

 

[Brendan Burgess]

I do know of quite a few people in 2 major cities who have bought and sold (moved) 3 and more times in the last 20 years while making one hell of a lot of money from doing so.

But did they make the lot of money from buying and selling? They made the money from owning property.

One big drawback of the proposal is that it might discourage people from trading up or down. And in a healthy market, people should trade up and down.

Brendan

 

[Purple]

But did they make the lot of money from buying and selling? They made the money from owning property.

One big drawback of the proposal is that it might discourage people from trading up or down. And in a healthy market, people should trade up and down.

Brendan

The other drawback is the position of a family who have moved in with a parent. When the parent dies they may well have to sell up. That could be avoided if the same rules that are currently in place for inheritance are applied.

 

[Brendan Burgess]

In the US, if you realise a capital gain on the sale of your main home, you can only exclude $250,000 of that gain (or $500,000 if married and filing jointly) for tax purposes. This exemption is only available once every two years.

Very interesting.

Not sure about the two years limit. Very few people would trade up again within 2 years. And if they did, they probably wouldn't have much of a gain.

And sometimes people have to trade up again quickly. They have bad neighbours. They can't afford their mortgage. They move job.

But I like the principle of a limit of some sort.

Brendan

 

[Brendan Burgess]

When the parent dies they may well have to sell up. That could be avoided if the same rules that are currently in place for inheritance are applied.

Well they would be subject to CGT on the gain between when the parent bought the house and when they died.

So if they got a €500k house, which was bought for €200k, they would be paying €100k CGT.

I would be happy to inherit a €500k house if I had to pay €100k CGT.

And mechanisms could be put in place to defer the payment or to get a mortgage for it.

Most people can't afford to buy a house at all.

Brendan

 

[NoRegretsCoyote]

Are you fully opposed to CGT on the PPR? On all PPRs? Even homes worth over €2m?

In my anecdotal experience people rarely crystallise these gains, staying in overly large properties until death.

My grandmother is sitting on a 10000% nominal gain in her PPR which she will never exercise!

I'm in favour of a higher LPT overall, and a lower CAT threshold overall for inheritances. I think that's fairer and introduces less incentives to sell or not sell at certain times that CGT does.