How to solve the problems with Britain’s property market

A word on the UK property market. I have, like all other commentators, been thinking again about a possible solution to its various problems (beyond the obvious one of raising interest rates to crash prices). And I think I might have a partial solution. It involves inheritance tax (IHT).

David Cameron introduced an add-on to the tax regime called the main residence nil-rate band, which by 2020 will allow a couple an extra £350,000 tax-free allowance to use to pass on a family home. This is a bit silly. It perpetuates and legitimises the deeply destructive idea that homes are the be all and end all and it discriminates against those who don’t own them.

How about if we reverse it and then drop IHT on all assets apart from residential property? So all investments in everything else – equities, bonds, family firms, gold bullion and so on – pass on tax free. But all houses are taxed on death at, say, 20% of their market value or perhaps even just on their capital gains (no allowances).

That should encourage the retired to downsize – possibly even freeing up the cash to pay for their own social care along the way. And it might even mark a turning point in the way we view houses, from a must-hoard item to an end-of-life hot potato. Problem solved. Comments welcome.


  • Underminer

    Elegant idea and if you could make it work it would be laudible, but you would need to consider some details: my first reaction would be to transfer my house into a trust or offshore structure.

    • disqus_x5UmkDRb7H

      Fair point, but I would have thought easily rectified. All domestic property in the UK owned by an external or offshore structure, in fact any property not liable for the tax, is charged an annual property tax of say 5%. Further, there is a charge on putting a UK property into such a vehicle, equal to 10% of the value.
      That way, you would have to go to a lot of trouble and know that you were going to die in the next 12 months to make a penny

  • Rishi Abhyankar

    while we are at it….. why dont we start charing over 88s a tax to breathe? Afterall, they are consuming precious resources, which they should legitimately have let go of, given that they have lived more than the avg life expectancy. In fact, lets also charge their kids an extra tax …. how dare they have parents (and their genes) who have done the right thing and stayed healthy … thus consuming precious resources and being a drain on the society!!!

    • quark

      I don’t think Merryn understands the retired. The two most stressful events in one’s life are divorce and moving house. Downsizing is all very well, but what do you want us to downsize to? And what are the health consequences of moving to an elderly person? I would love to move to a bungalow. They don’t build them in London. Or they cost £1 million plus. Do I move to the country where I have no friends? I lived in a rent controlled bedsit flat when I was a youth, with my parents who had no money. No garden. I had to play in the street. Frankly, I don’t want to end up in a flat again. What’s more, people are using houses as a speculation. They extend to the maximum so a just about affordable house, becomes unaffordable. Houses for sale with room to extend are snapped up by small builders for profit, or turned into flats.

      It’s not our fault that house prices are soaring. Blame Mrs Thatcher for the sale of Council houses and the deregulation of the financial services industry who have damaged this country. Blame the financial services industry for their lending practices. Blame immigration (no I am not a racist). 5 million extra people in the last 10 years, plus the children that have been born in the meantime. Blame medicine for keeping us alive when we should be dead; but stop blaming the elderly for their natural desire to stay in their homes in their declining years without the stress of moving. And it is soooo stressful.

      As far as inheritance tax is concerned, there is fair taxation and there are unintended consequences, if you make it too complicated. Make it fair and simple to understand. Discrimate against housing and it will bite you back. Accountants and Lawyers would have a field day.

      When I bought my house it was unaffordable. They always are to young people. It’s time to stop targetting the elderly. The amount of critisism we are taking from young journalists. From people such as Nick Clegg and Richard Branson. From highly paid 40 somethings earning salaries that we could only dream of. We are being undermined from all sides. I hope it makes you proud!

      • Underminer

        I think you miss lots and lots of points here. After all, its an estate tax so when you die, who cares?

      • Apollocreed

        Flats are more secure from burglars than houses, so I think it’s a good idea for the retired to move into a flat.

    • Apollocreed

      Do you realise that people living in the 1950s-60s had free prescriptions and lots of other free stuff which they financed by the government building up debt for future generations to pay back? The NHS and education system worked well then because there was lots of money borrowed on the account of future generations. The elderly have lived an easy life and taken more than their fair share.

      • Ralph Clark

        ….. and do you realise that it is the young generation who is quite happy to allow hundreds of thousands of new people in to the UK every year and the impact that is having on not just the housing market but society as a whole – you can’t just cherry-pick and you are certainly not in a good position to judge just how easy the elderly once had it compared to the youth of today – that is a complex debate involving many pros and cons on both sides – you can’t blame a generation(s) of people for the incompetence of politicians either, who have been more concerned about being re-elected than they are on the welfare of the State as a whole – it’s always been about votes and it always will be – fairness is just an impossible pipe-dream and the inequality that exists is not the blame of any one section of the public – besides I thought the trend amongst younger people today was to be non-discriminatory – or is that just a matter of convenience depending on who is being discriminated against?

      • quark

        33% basic rate tax. 20% inflation. Plus the three day week and unemployment. When the Public Sector could charge what they liked and managed to live with inflation whilst the rest of us suffered. OK the NHS worked, but then we didn’t have a nett migration of 300,000 plus a year. 5 million extra people in the last 10 years, plus their newly born children. 7 million since the year 2,000.It’s like compound interest when you include the birth rate. Our infrastructure cannot cope. Neither can the NHS, what with the fact that the selfish elderly are living longer. Funny thing is, our London surgery seems to be packed with young mothers and their babies, not the elderly. The housing crisis is fairly and squarely on the shoulders of Margaret Thatcher, who sold off Council houses, a deregulated financial services industry which lent money unwisely, increasing prices. (We were restricted to 3 times income). Immigration, more people living on their own, Including divorcees and single unmarried mothers with kids .Plus QE . I get fed up with the young moaning about their lot, when I see some of the salaries offered to talented young people nowadays, the mobile phone subscriptions, Sky subscriptions, holidays in exotic locations. Sure there are young people struggling. It was always thus; but let me assure you, life was not easy in the 1970’s. As for inheritance tax, as far as I am concerned, it’s theft. It’s always those without, who favour high taxation, until it’s their turn. As for the housing crisis, there are many factors to blame. The least blame lies with the elderly. As for having to live in a flat, stuff that. What right has anyone to ask us to downsize? Next you’ll be asking us to go to Switzerland and take an injection. This debate is unhealthy!

  • Simon Peacock

    I appreciate the idea but the proposed solution is nil sum. Given population growth and a tendency towards solitary living, rotating people within the existing stock is simply a game of musical chairs, only more people are added rather than chairs removed. There is also the blindingly obvious issue of stamp duty which encourages inertia. Nice idea but I think a more comprehensive approach is necessary. A tax that progressively punishes development companies that bank land with planning permission would address the supply side problem more directly.

  • A Frith

    I think the IHT band is too low, and ought to be equalised for married and single people. I recently was executor of two wills that included houses and were borderline into IHT liability.
    The IHT band is so close to the average house price that most houses will push an estate into taxation.
    The great difficulty is that tax is paid on the valuation, and this is merely an opinion.
    A tax level of 10% on the the whole of the first million, and 20% on the second, would cause less distress, together with the complete abolition of all exemptions.

  • Jack Worth

    Firstly lets revert to calling IHT what it really is – death duties, payable on all assets (over the paltry nil rate band) purchased with tax paid money (with the exception of capital growth on houses and a few other things). The old and wise with families they can trust are now dumping their homes, passing cash to their kids and grandkids and renting. After seven years the cash is gone and the state picks up the care bill. Hence suggestions to extend the seven years. The rise in property prices is fueled by the 5 million extra people (how do kitchen assistants from around the world afford living in London?) and world wide central bank policy regarding low interest rates which will very soon start to haunt them. Our own “Krusty the Clown” Carney is hugely at fault and even his own prime minister thinks he will be unemployable after this job but no doubt he will find a trough to stick his nose in.
    One improvement would be to limit death duties to be paid only once on sums passed down not every time someone dies. After 4 deaths £1M becomes £130,000. The greedy government will never have enough of our money to waste.

  • Apollocreed

    We need 100% CGT on main residences (less an allowance for improvements). I know someone who bought a house in 1971 for £1400 and left it vacant until his kids sold it for £610k in 2010. Free, unearned money as a result of taxpayer improvements to society!
    This would achieve a similar result to the LVT that Henry George,Lloyd George, Winston Churchill, Philip Snowden, Fred Harrison and Prof. Mason Gaffney recommend, but would be simpler to implement.

    This would also end debt-binging to fuel property speculation and there would be no more banking collapses, credit crunches or similar things.

  • Jonathan Shaw

    That’s pretty cruel to the terminally ill. You’ve just learnt you’re dying in 6 months, now you have to move house in order to save your children from a hefty IHT bill? OK, it’s a choice. But it puts people in an unpleasant position at the very time when they most need support.

  • Apollocreed

    How about close the loopholes first? It’s scandalous that the Duke of Westminster just inherited £9bn of property and paid no IHT. His family have owned huge swathes of land for 500 years and it’s worth more every year.

  • Ralph Clark

    Inheritance tax of any kind is despicable. We are taxed when we work, then again when we spend our earnings and yet again when we die. The people who ‘went without’ during their working life are increasingly taxed savagely when they retire not just directly but due to enforced self-funding because of means tested benefits. The number of retired people who are forced to sell their homes in order to pay for Social Care is increasing all of the time, yet this point seems to be completely ignored by everyone and it is possibly the most savage “tax” of all – talk to someone who has experienced it and they will tell you that I am sure. Changing one aspect of our tax system isn’t going to help much in my opinion, it is the whole structure that needs re-thinking. The simple truth is we can’t afford to do that and so it’s unlikely to happen, unless we experience massive economic depression forcing us to start from scratch.

  • David Webb

    Yes. Good idea. But I like the land value tax idea (on the land value only; not the property value), which makes it expensive to hold expensive property. This would encourage efficient use of the housing stock. And then we could cancel stamp duty, which deters transactions. Once the LVT had crashed prices, we could then have a zero stamp duty making it simple for people to sell up.

  • Aztec

    It is a brilliant idea. Which is probably why it will never happen.

  • Stephen

    Great idea, perhaps make the rate a bit lower. I don’t want to downsize now I’m retired, I want more space so would like a bigger house please. But I will not move because I’m not going to pay all that stamp duty. So I and thousand others will bugger up the housing chain until government stop thieving off us and allow us to move more easily.
    There, problem sorted

  • Bab Boon

    From a clinical, rather than a financial, perspective if you’re elderly moving house poses far greater risks than when you’re younger.

    The mortality rate amongst elderly people who move, often to downsize to a more eaily managed home, is significantly raised. Of course there may be underlying factors which encourage the move, but the move itself seems to have a causal impact on the mortality rate.