At first glance you could be forgiven for thinking that Labour’s publication ‘Land for the Many’ is a set of policy ideas that solves the housing crisis. Increasing the supply of affordable housing and freeing up land to build, improving access to existing stock and transparency sounds fair, right? Yet tucked away inside the report, you’ll find a range of measures that could pull the market as we know it to pieces; it’s the most radical sets of property proposals since the mass building plan after the Second World War.
The report’s editor, George Monbiot, has not thought through the unintended consequences of the proposals. Just one example and perhaps the most damaging is the desire to reduce land prices. With government (national and local), institutions and pension funds and religious organisations being the most prolific landowners, often on our behalf, this would be an economic disaster. It would undermine the nation’s ability to pay for any of the measures they propose, by reducing our ability to borrow efficiently. Pensions would see a reduction in their value too.
But such a move could affect you directly. Setting aside more tax required to fill the gap and negative equity for those who borrow too much, the cost of borrowing could rise. In fact, our currency would depend on it. So, it’s always important to make sure you are in a position pay your mortgage, should interest rates rise significantly.
Whilst this paper is not Labour Party policy, they’ve already floated a number of these ideas. And because we are so Brexit gridlocked, no one has taken the time to dissect this set of bombshell proposals.
These are the four most likely proposals to become Labour Party policy and what you can do to insulate yourself and your investment.
Abolish inheritance tax
Sounds like a nice idea, until you realise that it will be replaced by a lifetime gift tax. After an allowance of £125,000 any gift would be taxed at the same rate as income tax. So, if you are a higher rate tax payer, that’s what you’ll have to pay. And if you want to take money out of your home through equity release? You’ll pay tax on that too.
If you have a family member who’s planning to leave you money or gift anything to you, persuade them to do it sooner rather than later. Tax changes are rarely retrospective.
Replace Council tax with ‘Progressive Property Tax’
This is the idea that won’t go away. In another guise, the Mansion Tax is back. Except it won’t just be mansions caught by this pernicious change. Forget the cost of local services. Or how much you earn. The more valuable your house, or flat, the more you would pay in council tax under Labour’s plans.
Based on these plans, arguably the best type of property to own is the short leasehold in a prime location. Perhaps 40 – 60 years left where value is compromised but you can enfranchise. There is the benefit of occupation and ownership with lower tax.
Second home tax
With more of the population either owning or aspiring to own a second property, this is clearly an area ripe for tax. Not only would stamp duty stay on these assets but capital gains tax would rise under Labour should you sell. And then the real clincher… you’d have to apply for permission for the property to be used as a second home or rented out. And you’d have to apply every five years. In essence you buy an asset and you might be forced to sell because holding it may be too expensive. A fee may be levied too. It’s not at all clear how investment properties bought with the intention of generating an income will be treated under Labour.
The only way out of this tax is for you to own one home and your partner the other without getting married in the first place or by being divorced.
Getting a mortgage
After a big fall in house prices has been achieved, expect to find it more difficult to get a mortgage as LTV, Loan To Value, rates are tightened.
What if you are trying to get onto the ladder now? Don’t borrow to the limits of your finances and keep your LTV below 75 per cent. You’re better off saving for longer or having a bit of a financial cushion to allow for interest rates to rise before you get into difficulties.
To ‘discourage land and housing from being treated as financial assets’ is beyond bonkers. But we are in a pre-Brexit and leaderless world where bonkers is the new norm. No one seems to have discussed these proposals in a way that has cut through to voters, on whom they’ll have a sizeable impact. And that’s why you need to prepare yourself for a different kind of austerity should Labour get anywhere near to the corridors of power.
James Max is a businessman and broadcaster. Find him on Twitter: @thejamesmax