What’s am I buggering on about this week?
IMO the current government are utterly inept. That doesn’t stop the civil servants in the Palace of Westminster though, oh no. And some clever dick in HM Rev & Customs has been playing in a blinder over the last few years. Act 1) Letting inheritance tax quietly roll in. TI covered this in the Monevator weekend reading a few weeks back, but I wanted to look in further detail (1). The increasing CGT returns has partly come from increasing inheritance tax. This is the wealth of the baby boomers, coming home to the treasuries roost. To quote the i article, in the past 20 years the total value of people’s estates has more than doubled, so that as a percentage of income it’s reaching 1930s levels (2). It will continue to rise as the wealthiest generation die off.
I don’t particularly like inheritance tax. Beyond personal reasons I see it as an inefficient method of redistributing wealth stinging the middle class rather than the truly rich (who can circumvent it), and essentially double-taxation. YFG said it better on Monevator than I ever can (3, 4). Inheritance tax is currently at a relative effective low, but there are many calls for change. Some of this is driven by the way inheritance tax is stinging younger generations, who due to house price change have not been able to afford property and so have been waiting for inheritance to give them a step on the ladder (2). A survey published this week by Charles Stanley suggested that for many this expectation was unrealistic (5). Millennials were expecting 10x the median inheritance amount. The expectation was that this would act as their housing deposit, whereas in actuality the people they were inheriting from are living longer and more likely to use their house equity for nursing homes and then inheritance tax bills. Silly millennials.
What about Act 2? The BTL taxation noose. I’ve talked before about how I believe BTL is HMRC’s low-hanging fruit of choice. Now landlords are looking to sell-up as the new rules come into force (6). I think this is a really clever piece of rule-making. In the changes to Section 21, the government have made it harder to evict no-fault tenants, appeasing a big voting base (7). In the increase in stamp duty and removal of income tax relief they’ve stung profits, but harmonised with other income sources (8). Offsetting mortgage interest payments against income tax makes some sense from a business world point of view; like using stock write-downs and depreciation to reduce income assessments. It doesn’t make sense when you compare it to other private property scenarios, where you can’t offset your income tax bill with your domestic mortgage interest. Here it levels the playing field. The changes to the minimum EPC rating required for rental (now E), and tightening of BTL lending controls are just the kicker (9).
Practical upshot of tightening the rules on the BTL free-for-all, hobby landlords are driven out and professional landlords remain. Landlords come in all shapes and sizes, but those just about making the sums work are now going to struggle. The sale of these previously rented properties provides a nice CGT boost to the treasury, and also brings new property onto the market at a time when there is a housing stock shortage: double win! Just a shame these properties are generally only fair to middling quality, being ex-rental.
No longer interested in a BTL? Well you could go for a REIT, but I learnt this week about REAPs; Real Estate Annuity Plans (10). A sort of real estate investment bond, which funds affordable housing developments. Return is only 3%, but you get a nice warm glow inside without having to trigger your poverty allergy.
Have a great week,
- Cash ISAs are declining in popularity (11)
- Universal Basic Incomes seems to have been in the press alot, with some sources arguing for £48/week (12)
- And others saying it’s a load of horse manure (13)
- Boeing is reaping the rewards of pursuing profits over design safety (14)
- The markets have had a torrid week (15) – Essentially irrelevant in the long term
- A decade of low interest rates means there’s lots of companies just surviving which should have long since gone under (16)
- The UK went a week without burning coal for power (17)
- Also reported here (18)
- Interesting analysis of lifetime environmental cost of EVs (19)
- Much as I hate to line Murdoch’s pocket, here’s my former colleague, Ami ‘the bosh’, ranting about the NHS pension (20)
- How Airbnb got so big (21)
- Monevator on planning for financial disaster (22)
- MMM tries not to buy a Tesla (23)
- UKVI looks at Reckitt Benckiser (24)
- And Compass Group (25)
- 3652 days reports on their Q1 (26)
- A really nice reader story on Cashflow Cop (27)
- ERE is learning about Permaculture (28)
- While DIY Investor UK is learning about the climate emergency (29)
- Firevlondon posts his April returns (30)
- The Caveman on decision and fear paralysis (31)
- Fu Mon Chu with Aprils net worth change (32)
- The saving ninja on worry (33)
- Mr and Mrs Way on how they keep their finances separate (34)
- And with their April spending (35)
- The eagle has been on holiday (36)
- David reflects on the confusion early retirement can bring (37)
- Indeedably runs some numbers on house ownership (38)
- And on hamster wheel life (39)
The kitchen garden:
- Jack Wallington is making long term planting plans on his allotment (40)
- Sharpen your spades has a list of jobs for May (41)
- And Paul is making radish tzatziki (42)
What I’m reading (affiliate links):
Food Of The Gods: The Search for the Original Tree of Knowledge: A Radical History of Plants, Drugs and Human Evolution – Terence McKenna – An ethnobotanist explores humanitys’ fascination with hallucinogenics, and the role of altered states of consciousness on the development of human society.