Ted Newson is a Researcher at the Global Warming Policy Foundation
With an ageing population and an estimated 20 per cent of people likely to be pulled over the inheritance tax (IHT) threshold, more people than ever will face estate planning in their twilight years. IHT is one of Britain’s most hated taxes, as the Tories have long argued. And yet despite that, their plan to exempt primary residences (referred to by Kemi Badenoch as ‘family homes’) will only distort Britain’s housing market even further.
Affordable housing is now a cross-party issue. The Conservatives are pledging to scrap stamp duty on primary homes – a bill that runs into the thousands of pounds. Labour wants to build 1.5 million homes in this Parliament, although many acknowledge it will fall short of such a target.
Andy Burnham has also been vocal about council homes being ‘sold off’ in Thatcher’s day, which suggests he wants to expand social housing significantly. Reform plans to deregulate the planning system, getting to the root cause of what often blocks brownfield site development. Kemi’s promise to abolish Natural England and the Environment Agency would also ease brownfield development, which is often hamstrung by the ‘biodiversity net gain’ requirements.
It isn’t a leap, then, to say that every party wants cheaper housing for the next generation. Boosting supply while cutting building costs and tax bills is clearly aimed at bringing prices down. Why, then, would Badenoch exempt family property from IHT?
The policy would clearly incentivise hoarding property rather than downsizing once the children leave home. At present, a house is taxed like any other asset, so there is no tax reason to keep more of it than you need. Under the Tories’ plan, the economic incentives would be muddied: sell up and the proceeds are taxed at death, or keep the house, and it is shielded from IHT obligations. By nudging people to concentrate their wealth in a primary residence, the plan would unbalance the market. Who would put their money into equities, art or antiques, which are taxed, when housing isn’t?
Naturally, the Tories aren’t the only ones with ill-thought-out housing policies. Burnham’s new scheme offers government-backed equity loans of 20 per cent on new-build homes in England, with a minimum 2.5 per cent cash deposit. It flies in the face of both fiscal responsibility and the free market.
On a £230,000 home, for example, that means a £5,750 deposit and a £46,000 government loan. In The Big Short, a film about the 2008 financial crisis, one investor only realises that there is a housing bubble when a very nice lady tells him she owns several homes, all heavily leveraged on tiny deposits and minimal credit checks. Burnham’s policy appears in much the same spirit.
The case for the equity loan rests on prices being out of reach everywhere. They aren’t. I may get some stick for saying this, but outside London and the South East, most homes are actually affordable.
With the rise of hybrid working, commuting to work two days a week and working from home for the remaining three is perfectly possible. In my university city of Leeds, which has one of the highest mean wage rates outside London, homes averaged £248,000 this July. That is well within reach after fifteen years of hard work and shrewd investment. Dropping deposits to just 2.5 per cent and making loans and credit even more accessible is overkill, aimed at the more irresponsible in society.
The majority of IHT-liable wealth is concentrated in London and the South East, so it seems ridiculous for the Conservatives to pledge to protect it, risking an even more divided national property market. In my home county of Essex, the average home sells for £342,500. In the Northern seaside town of Redcar, it is just £150,000. A policy whose benefits flow mostly to the places where homes are already dearest is hard to justify, especially if it pushes prices there higher still.
For a party that eventually wants to do away with IHT, this is the wrong move. A far simpler option would be to cut the rate from 40 per cent towards 20 per cent, arguably a cheaper policy that treats every asset alike. The real fix is greater housing supply and a coherent tax base, one that offers families dignity after the death of a loved one without compromising free markets.
Ted Newson is a Researcher at the Global Warming Policy Foundation
With an ageing population and an estimated 20 per cent of people likely to be pulled over the inheritance tax (IHT) threshold, more people than ever will face estate planning in their twilight years. IHT is one of Britain’s most hated taxes, as the Tories have long argued. And yet despite that, their plan to exempt primary residences (referred to by Kemi Badenoch as ‘family homes’) will only distort Britain’s housing market even further.
Affordable housing is now a cross-party issue. The Conservatives are pledging to scrap stamp duty on primary homes – a bill that runs into the thousands of pounds. Labour wants to build 1.5 million homes in this Parliament, although many acknowledge it will fall short of such a target.
Andy Burnham has also been vocal about council homes being ‘sold off’ in Thatcher’s day, which suggests he wants to expand social housing significantly. Reform plans to deregulate the planning system, getting to the root cause of what often blocks brownfield site development. Kemi’s promise to abolish Natural England and the Environment Agency would also ease brownfield development, which is often hamstrung by the ‘biodiversity net gain’ requirements.
It isn’t a leap, then, to say that every party wants cheaper housing for the next generation. Boosting supply while cutting building costs and tax bills is clearly aimed at bringing prices down. Why, then, would Badenoch exempt family property from IHT?
The policy would clearly incentivise hoarding property rather than downsizing once the children leave home. At present, a house is taxed like any other asset, so there is no tax reason to keep more of it than you need. Under the Tories’ plan, the economic incentives would be muddied: sell up and the proceeds are taxed at death, or keep the house, and it is shielded from IHT obligations. By nudging people to concentrate their wealth in a primary residence, the plan would unbalance the market. Who would put their money into equities, art or antiques, which are taxed, when housing isn’t?
Naturally, the Tories aren’t the only ones with ill-thought-out housing policies. Burnham’s new scheme offers government-backed equity loans of 20 per cent on new-build homes in England, with a minimum 2.5 per cent cash deposit. It flies in the face of both fiscal responsibility and the free market.
On a £230,000 home, for example, that means a £5,750 deposit and a £46,000 government loan. In The Big Short, a film about the 2008 financial crisis, one investor only realises that there is a housing bubble when a very nice lady tells him she owns several homes, all heavily leveraged on tiny deposits and minimal credit checks. Burnham’s policy appears in much the same spirit.
The case for the equity loan rests on prices being out of reach everywhere. They aren’t. I may get some stick for saying this, but outside London and the South East, most homes are actually affordable.
With the rise of hybrid working, commuting to work two days a week and working from home for the remaining three is perfectly possible. In my university city of Leeds, which has one of the highest mean wage rates outside London, homes averaged £248,000 this July. That is well within reach after fifteen years of hard work and shrewd investment. Dropping deposits to just 2.5 per cent and making loans and credit even more accessible is overkill, aimed at the more irresponsible in society.
The majority of IHT-liable wealth is concentrated in London and the South East, so it seems ridiculous for the Conservatives to pledge to protect it, risking an even more divided national property market. In my home county of Essex, the average home sells for £342,500. In the Northern seaside town of Redcar, it is just £150,000. A policy whose benefits flow mostly to the places where homes are already dearest is hard to justify, especially if it pushes prices there higher still.
For a party that eventually wants to do away with IHT, this is the wrong move. A far simpler option would be to cut the rate from 40 per cent towards 20 per cent, arguably a cheaper policy that treats every asset alike. The real fix is greater housing supply and a coherent tax base, one that offers families dignity after the death of a loved one without compromising free markets.