Jill Kerby

RELAX: THE GOVERNMENT WOULD NEVER RISK A PROPERTY CGT

Last week after appearing on the Today with Sean O’Rourke show on RTE 1 to discuss a proposal by the Department of Finance’s tax strategy group about charging capital gains on the profitable sale of the family home, a lot of angry tweets, texts and emails lit up RTE’s switchboard and my in-box.

The tax strategy group must know that the very idea of a tax on the family home would be ripped to shreds. It’s such “political dynamite” that I doubt if it will get anywhere near the Minister’s October Budget speech.

But playing the devil’s advocate, I suggested that such a tax actually makes a lot of sense in our debt-ridden, ageing economy where the demand is only going to get louder to higher pensions, more health care and more expensive long term care for the elderly.

I also argued that decades of misguided pro-property tax policies – which favour home ownership over all other kinds of savings, entrepreneurship, investments and even pension funds– need to be torn up if we are to break Ireland’s recurrent boom and bust property cycles.

Anyone lucky enough to have bought a home at the cheap end of the cycle and sell (or even become mortgage-free) at the top end, have been the biggest beneficiaries of those pro-property policies and tax subsidies over many decades. They also enjoy the ultimate reward:  an entirely capital gains tax-free profit when their property is sold.

I am one of them – an empty nester with a big old house.  If a CGT was about to introduced, I’d take the hint and sell now (and hopefully find a suitable, smaller property, something I wrote about last week.)  I have plenty of friends in the same position.  That drastic tax charge would certainly get the flow family sized properties moving again, and if supply was sufficient, bring down prices too.

A CGT tax might also – if it helped bring down prices and help restore some normality to the market - show that mortar and bricks are NOT a better pension substitute for a well-run, low cost, diversified, long term pension fund (which I also have). Or that it is our god-given right to magically reap a guaranteed, tax-free profit from our subsidised bricks and mortar…at the expense of renters, for example.

Memories are perilously short, but readers may recall how everything from the most ordinary, poky, 3 bed semi-d to a leafy Dublin 4 mansion was “earning” their owners the equivalent of a year’s salary. It was the most obvious sign of all that the property market was on a mad, bad, increasingly dangerous roller coaster.

I’m one of the lucky baby boomers and older retirees who happened to be in the right place and time to benefit the most from the upside of the booms and busts.

My husband and I were recipients of a £5,000 new house buyer grant to purchase our first house in 1986. It was sold in 1994 just as we started a family, but also just as the last great property recession was turning. We bought our current house – a big old decrepit Victorian end-of-terraced for c€125,000.  We doubled our mortgage.

Yet within a year, interest rates began their long deep retreat from double digits and property tax was abolished. The Celtic economy stirred and soon wages and salaries were up and taxes were coming down. Personal debt was puny.

But instead of reigning in the heated-up property market, the government encouraged it with more tax breaks and allowances for builders and developers. Addicted to stamp duty and other property taxes, it encouraged the banks to lend even more recklessly.

The rest is history.

By the summer of 2006 my old money pit of a house was worth €1 million - on paper. But by 2007 house values started falling sharply. The crash brought them all the way back down to c€300,000. Having paid off the mortgage – and not borrowed on the basis of its paper value - we were still “in profit” thanks in a big part to the legacy of favourable tax treatment (and economic growth) we’d enjoyed from the purchase of our first house.

Fast forward to 2017. My old money pit of a house is now “worth” c€700,000 even though it is now 122 years old and surely, a depreciating asset if only because of its age.

Yet if we sold it tomorrow, we’d still “earn” €575,000 tax free over it’s original asking price. (A 33% CGT would amount to €189,750).  Meanwhile young families (like we were once) struggle to pay exorbitant rents …if they can even find somewhere to rent.

So should a CGT tax be introduced to help wean us off this dominant, volatile and unevenly distributed wealth asset?  Maybe. But it won’t happen. You can all relax. We believe unearned, tax-free profit from property is a God-given right.

The next generation can make its own luck.

Please send your queries to Jill c/o this paper or by email: jill@jillkerby.ie

 (The new TAB Guide to Money Pensions & Tax 2017 is now out. €9.99 in good bookshops. See www.tab.ie for ebook edition.)