What caught my eye this week.
I found it hard to be outraged by last week’s decimation in the number of pensioners who’ll get winter fuel payments.
Restricting the annual cash award to those on means-tested benefits will see only about 1.5m pensioners getting the goodies in future.
The other 11.4m pensioners will just have to use their own money to pay their bills, like the rest of us.
Of course in many cases ‘their money’ will be, for you dear reader, ‘your money’
Monevator’s readership skews far wealthier than average, and it’s clear you’re aging out too.
So no doubt I’m biting the hand that feeds/reads me.
Nevertheless, downsizing winter fuel largesse will save the taxpayer £1.5bn much-needed pounds. A good call, as far as I’m concerned.
Low-to-middle earners have had it worse than pensioners for years, and a lot of the strain on the UK’s balance sheet is there because of national lockdowns that especially protected the elderly.
I’m not arguing here that it was wrong. Just that it’s right for the oldies to now share the burden.
If you feel differently then you could sign Age UK’s petition to reverse the decision.
However if you’re a wealthier pensioner who will really miss £200, maybe you could move to a smaller, warmer home instead?
Cheaper cosier homes
Rightmove came out with interesting figures this week. It flags a vast pool of housing equity that could be unlocked by empty-nesting OAPs rattling around in much bigger houses than they need.
The agent claims that swapping a five-bed home for a three-bed could release £500,000 on average:
Source: Rightmove
Besides a one-off cash tsunami, Rightmove also calculates that moving to a smaller, energy-efficient home could save more than £3,000 annually in utility bills.
The lost £200 winter fuel payment is small beans by comparison.
Unlocking this sort six-figure sum – tax-free – would solve most pensioners’ cost-of-living problems.
Though of course, most pensioners – even wealthy ones – don’t live in five-bed houses.
True, but the same principle holds up and down the ladder. Exchange hundreds to thousands of square feet you don’t need for an otherwise higher standard of living in a smaller property, with lower bills.
Few of these millionaire homeowners could have imagined the windfall gains they’d see from the UK’s relentless property boom when they first bought all those decades ago.
It doesn’t seem unreasonable to suggest more of them might tap into their good fortune to help ensure their own comfortable old age.
Down and not-out
It seems a no-brainer. Yet whenever you suggest asset-rich pensions should downsize if they need more money, there is indignation. (I look forward to reading the good natured variety in the comments below!)
Why should people be forced out of their family home? They may not need those bedrooms, but oh the memories!
That sort of thing.
Or – and I have more sympathy for this one – fine but where are we meant to downsize to?
The UK does have a shortage of high-quality, desirable homes for ‘aging in place’ as the Americans say. And what does exist seems very expensive.
Now that people are living so much longer and in many cases retiring so much richer – especially asset-rich – it’d be nice if property developers responded with bespoke communities of well-priced amenity-adjacent homes that suited ageing owners. Downsizing destinations that are just to good to refuse.
Add it to the list please, whoever is fixing the UK property market!
Oh, and for the record I don’t think anyone should be forced out of their home by government edict.
But equally, I would far rather my share as a taxpayer of that £200 winter fuel payment went towards an inner-city kid’s education instead – or an actually-poor pensioner’s living costs – than to fluff a weekend getaway for a pair of silver foxes living in a £1m-plus rectory.
If you can afford to heat a far bigger house than you need yourself, then fine.
But I don’t see why the state should help pay for it.
Fair enough
I accept there are interesting wider questions about how to juggle supporting or taxing the elderly versus giving the young a leg-up.
My feeling is life chances at birth are not even close to equal. That is mostly why I favour supporting younger people, as well as the better bang-for-the-buck the state will enjoy from their subsequently more productive working lives.
Together with the fact that the young are in the most trouble right now.
(I’m excluding here the several dozen kids with over £750,000 amassed in their Junior ISAs, as per a recent Freedom of Information request. Those lucky mites can fend for themselves too…)
Moreover by the time someone is 70, their life choices have usually contributed hugely to the state they find themselves in. Not exclusively – luck, good and bad, always loom large – but no, I also don’t have a lot of sympathy for someone who never worked much, or who earned well but frittered it all away.
This is exactly what irks many of us who save hard versus our peers, and yet end up being taxed to support the indolent as much as the unfortunate in their old age.
You earned it, you spend it
For many of you, the argument against higher inheritance taxes is similar. If someone did strive to improve their fortunes, why should they be stung extra hard for not frittering the money away?
Understood but personally, I would look to increase inheritance taxes if I was Rachel Reeves.
That’s because I maintain I’d be taxing (more heavily) the recipients of the inheritance who did nothing to earn it. Not the deceased who strived to earn and save it.
But I can see why blurred thinking around this distinction causes so much rancour.
Similarly, with the question of downsizing – or even paying for care home fees – a lot of the anger at the idea of going smaller in their old age isn’t because people actually need all that space to keep a lifetime’s clutter that nobody will want when their gone.
It’s because the should-be-downsizer and/or their children want to transfer that family home – a valuable asset remember – as tax-efficiently as possibly.
And again, ensuring genetically fortunate 50-year-old heirs stay as wealthy as possible isn’t my priority.
The bottom line is the state is cash-strapped, the young can’t afford even starter homes without parental support (where it’s available), we don’t build enough of the right properties for either the young or the old, and something has to give.
Don’t worry – I’m sure I’ll take my lumps too in the Budget come October. No doubt I’ll bemoan it too!
Have a great weekend.
From Monevator
A new long-term World Index for GBP investors – Monevator
Now could be a better time to retire – Monevator
From the archive-ator: How to protect your portfolio in a crisis – Monevator
News
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How the UK’s poor paid the price of ‘cheapflation’ in the cost of living crisis – Guardian
London house prices post first annual rise in more than year – Bloomberg via Yahoo
New Brexit inspection charge is “huge extra expense for nothing” [Search result] – FT
Give schools a stake in NatWest to teach young about investing, says Lord Lee – This Is Money
Road sweeper denied crowdfunded holiday will go on trip after all – Guardian
UK CPI inflation reverses trend with a 2.2% rise, but uplift less than expected – Sky
Products and services
Mortgage rates fall as Nationwide offers five-year fix at 3.83% – This Is Money via MSN
Is the new Amazon reward credit card worth going for? – Which
How to get a top 6.1% rate on £10,000 of savings with Raisin – This Is Money
Open an account with low-cost platform InvestEngine via our link and get up to £50 when you invest at least £100 (T&Cs apply. Capital at risk) – InvestEngine
Drivers urged to beware ‘quishing’ scams when paying for parking – This Is Money
HSBC student account review: get £125 – Be Clever With Your Cash
Are you due a refund of overpaid pension tax? – Which
Homes next to lakes for sale, in pictures – Guardian
Comment and opinion
Why it’s usually a mistake to own individual stocks – Oblivious Investor
Can you afford a grown-up gap year? [Search results] – FT
A Boglehead interviews new Vanguard CEO Salim Ramji – ETF.com
The inflation scare is over [US but relevant] – Sherwood
Can economists help investors avoid recessions? [Spoiler alert…] – Morningstar
You are on your own – Abnormal Returns
Four dangerous assumptions that could hurt your retirement plan – Morningstar
The Stoic guide to investing – Darius Foroux [author of The Stoic Path to Wealth]
What’s the big idea? – Behavioural Investment
Bonds are still a hedge against bad times in the stock market – A.W.O.C.S.
The prenup prescription [Podcast] – Next Gen Finance
All hat no cattle – Humble Dollar
CoastFIRE mini-special
What is CoastFIRE? – Of Dollars and Data
The minimum investment amount where work becomes optional – Financial Samurai
Naughty corner: Active antics
Super smash: how Nintendo prints money – Sherwood
What do VC returns look like in practice? – Hunter Walk
The big forces – Paul Podolsky
Great explanation of a carry trade – Capital Gains
Kindle book bargains
The Happy Index by James Timpson – £0.99 on Kindle
Freakonomics by Steven D. Levitt – £1.99 on Kindle
Smarter Investing by Tim Hale – £9.29 on Kindle [£9.29! But rarely reduced]
Rebel Ideas: The Power of Diverse Thinking by Matthew Syed – £0.99 on Kindle
Environmental factors
Offshore wind developer Orsted drops green ‘mega’ plant plans – This Is Money
Big tech’s bid to rewrite the rules on net zero [Search result] – FT
“They encouraged us to insulate our home. Now it’s unmortgageable” – Guardian
Liked to death? – The Conversation
Robot overlord roundup
Automation is coming for private equity’s junior roles [Search result] – FT
Off our beat
Why one doctor prescribes walking to his patients – GQ
The freedoms and risks of being raised in a Utopian commune – Guardian
Elon Musk is a threat to international peace – Slate
In defence of beautiful housing – Roger Scruton Legacy Foundation
The real questions posed by counterfeit clobber [Search result] – FT
China’s rhetoric turns dangerously real for Taiwanese – BBC
We oldies can’t help but think of death – The Spectator
Runner raced against grandson on 85th birthday – BBC
And finally…
“The rich get the assets, the poor get the debt, and then the poor have to pay their whole salary to the rich every year just to live in a house. The rich use that money to buy the rest of the assets from the middle class and then the problem gets worse every year. The middle class disappears, spending power disappears permanently from the economy, the rich becoming much fucking richer and the poor, well, I guess they just die.”
– Gary Stevenson, The Trading Game
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“…that moving to a smaller, energy-efficient home could save more than £3,000 annually in utility bills.”
Oh my! What a waste of valuable resources. I’m just coming out of winter and my July utility bill was $48 (£25). A well insulated home, with heat pump hot water, LED lighting and a small solar array on the roof all located in a mild climate.
> and it’s clear you’re aging out too.
Does this tell you something interesting about the current affordability of the FI/RE dream? At the risk of sounding like Rob Bennett, stock market valuations up in the sky make the future income stream more expensive. Plus all the usual housing student fees crappy jobs observations.
With you on the WFA. My mother could perfectly well have paid her own power bills 😉 I am nowhere near old enough yet but when the time comes I can pay my own damn power bills too. Mind you, I felt the same about why should middle class parents get child benefit too. I don’t feel the same about the State pension whenever it will fall due because I paid NI for thirty years and top-ups towards it, though I suspect it will be means tested by the time I get it. Which will make the NI top-ups a misallocation of capital. Oh well.
@RIT — Ah, there you are! 🙂 I still check out your site now and then to see what came after ‘transitioning’. Glad to hear it seems to be going well. Feel free to give a fuller update for us here, if your blogging days are over 😉
@ermine — I don’t think the aging out reflects much about the affordability and especially not the appeal of FI/RE. Much more so shifting attitudes towards platforms and media consumption.
I understand you abhor smartphones, but you must know nearly everyone under 40 is on them all the time. Video is much more popular vs written word on smartphones than on desktop. And shortform video is the most popular still.
So I guess the 30-something equivalent of “The Investor” who founded Monevator back in 2007 is smacking his hand into his fist and chanting “compound interest compound interest” over on TikTok.
I don’t have any great urge to join him/her. But I hope some of their audience eventually do make their way here…
Yeah, the winter fuel allowance never made sense to me. But then neither do pension credits. Why work and save if you’ll get cash anyhow.
There is a great need to avoid youngsters becoming habituated to benefits ( in many cases like their parents). Training, apprenticeships, something with clear disadvantages applied if you don’t commit.
I have just seen a second acquaintance beggared by care costs (24 hrs live in). Budgeting for deep old age is difficult. Think their care costs were about £150k per year. If you are selling investments subject to cgt to fund that £500k won’t go far.
On downsizing, money isn’t everything. Can you think of anything more disruptive ? I suppose it is on a par with pulling your children out of private school because of money…you’ll try most other things first.
@Paul_a38 — You write:
I think there’s a lot of truth in this. However that doesn’t mean we can’t move towards something more sensible.
I’ve seen enough times in my own life older people who end up living in big homes that were much too much for them, who could have made a sensible move in their mid-to-late-60s say, a decade before they really needed to, and settled into a more appropriate home that wouldn’t later seem like the wrong place for them.
While I stand by the financial good sense of such a move, I’m not even talking only unlocking money here. I’m thinking big homes full of clutter, stairs, and gardens too far from where they’d ideally be (amenities, companions, a flat ground for daily walks for health), especially when a partner dies.
I’ve also got personal experience of trying to get family members to move in advance of their needs. Sadly, I haven’t prevailed, to mine and in at least one case their regret.
We considered downsizing, but balked at the prospect of the considerable stamp duty, removal costs (last time we moved removal costs were around £700, now probably £7000!), estate agency and legal fees etc, which reduce the cash return so much. Im not sure we would get what we wanted with what’s left.
Loved the Guardian story about the road sweeper.
Having downsized early (50s) it does still take a lot of upheaval and work, the latter reduced perhaps if you are buying a newbuild.
It has been a gamechanger financially to clear the mortgage in one fell swoop and enable pension saving to be turbocharged. Every square foot of the new place is used, no wasted rooms. Yet it is right sized for our needs, although decluttering and minimalism principles adopted during the move process certainly help.
What we didn’t compromise on this time was location, setting or character of property, which meant the savings by downsizing were not as large as they could have been. But fortunately had enough equity to make it work, and worthwhile.
I’ve also observed elderly parents refuse to downsize a high maintenance property (land/gardens as well as house) and it is really a struggle for them now, plus they are too old for the upheaval of moving.
They do however both love the place and wouldn’t be as happy if they moved, so that is still important. There will be some difficult times and conversations ahead though, undoubtedly.
My parents have just downsized last month to a much more suitable property, but it ended up costing them an extra £50k to be in the right place for their needs. They can afford it, and in their late 70s they are already saying they should have done it sooner, but it shows the ‘your mileage may vary’ approach rather than the cash bonanza the Rightmove data suggests.
Now, to persuade the in-laws to do something similar… FIL is a Yorkshireman, so the potential of a massive savings boost might be just the ticket
Welcome back to RIT – I too check in every so often (to disappointment)
On the elderly in 5-bed houses – I see this where I’m from, where I live and with friends and family.
Lots of older people rattling round in houses that are too big for them and their kids and grandkids in
worse/smaller housing.
Not every pensioner is in a 5-bed, but I’d be interested to see if number of bedrooms correlates better with family size or age – I suspect the latter.
And there already is a simple way to nudge people into living in a suitably sized house – a Land Value Tax (or council tax).
But things like winter fuel allowance, single / old age person discount on Council Tax and council tax being a lot cheap(er than equivalent taxes in the USA) – we end up where we are now, a housing crisis for the young, poor and renters that is oblivious to the old, rich property owners.
I’m 76 and would consider downsizing if it weren’t for the extortionate amount I would pay in stamp duty. Until the Government comes up with a scheme to reduce stamp duty for those downsizing I will be staying put.
@Natatafalie (#8):
Yup, much more common outcome than you might think.
Estate agents pen misleading information* – who’d have thunk it!
*their real issue interest is probably the fees such transactions generate for them
Why stop at downsizing within the UK?
That £1.7 mn 5 bed average London home shown in the table probably cost just £150k at the lowest point of the 1990-95 crash. With a 90% mortgage some people are sitting on 100 baggers, and all tax free due to PPR relief.
Sell that and move to Panama, Bolivia, the Philippines, Portugal, Malaysia, Mexico, Bali, Thailand or Vietnam. You can live like royalty and never need worry about qualifying for the WFA.
Not just stamp duty, but the whole house moving process is so cumbersome and painful. I understand that in Scotland your bids are binding, something like that could help in England?
Just a heads up that if anyone has a Kindle Unlimited subscription, the 3rd edition of Tim Hale’s Smarter Investing is available as part of that package. (I got a 99p for 3 months deal on Prime Day, otherwise not worth it for me.)
Completely agree with your thoughts TI.
The government needs to find money to provide better services for the majority. They will probably need to raise CGT and/or IHT and/or tax land value. As someone who would be hit by all three, I’m ok with paying, to avoid the UK turning to populists and teetering on the brink of lawless fascism/anarchy like the US. Think of it as a charge to retain the value of the rest of your assets, akin to paying vanguard for safekeeping.
@DeltaHedge — leaving your circle of friends behind would be a major downside of moving to a cheaper country. Sounds like a lonelier existence even if luxurious.
@RC – Boomers gotta boom, eh?
I suppose it’s not a giant leap to means test the hitherto universal state pension. A lot (or even all) of the same arguments apply.
As others have said: stamp duty. You could write a whole article just on the way it affects the housing market (and, arguably, economic growth too) although The Telegraph have almost certainly already done so.
At a personal level, I’m desperate to move one last time to a ‘forever home’ with enough land to keep me occupied into retirement, but the maths of how many hours of work the 10s of thousands they want in stamp duty for the privilege of doing so holds me back. (Well, it’s that and the idea that I could retire earlier if we don’t move of course!)
“last week’s decimation in the number of pensioners who’ll get winter fuel payments.” Decimation means killing one in ten. It was the other way about: roughly one in ten gets to keep the loot.
Though, of course, there’s the possibility that more pensioners will claim pension credit so that they get the WFA too.
“downsizing winter fuel largesse will save the taxpayer £1.5bn “: ‘course it won’t. Instead it will be blewed on large pay rises for favourite client groups of Two-Tier. Though maybe I have got that the wrong way round; maybe Two-Tier is head of a client group of Aslef and so on.
Why can’t they just have a council tax that reflects the size and market value of a property? Old people need a bit of tough love to help them make good decisions.
@dearieme — One in ten is correct, but it doesn’t have to mean killing in modern usage.
E.g. https://www.merriam-webster.com/dictionary/decimate
I was actually excited to use it properly for once, as the proportions are very close to one in ten (not exactly but good enough for government work! 🙂 )
As you’ll know people just use it to mean ‘a lot’. I’m sure I have in the past too.
CoastFI/RE? Under what circumstances does retiring at 65 count as early retirement? To pick another nit, the premise of saving all the wedge to retire on from your income between the ages of 20s and 30 seems a tough ask, this is usually when money is tightest and pay lower.
I think most of the outrage about the winter fuel bill being removed is how it will be decided who will get it and who won’t. The cliff edge criteria is: receive pension credits, get payment; don’t get pension credits, don’t get payment.
A pensioner who is solely living on the state pension (who won’t be entitled to pension credits) will now not get it, yet they are arguably barely better off than those on pension credits, who will also likely have other benefits to which they are entitled.
I have no idea what the solution should be, but the bar seems to have been set too low I think.
@ermine #23: I think that it would take an awful lot of luck for Coast FIRE to work out.
Say that somone is in their mid to late 20s and earning £75k gross and £50k net. They’re living in London (hence the decent salary) and, after rent, student loan repayments and building up a cash deposit for a house, they just about manage to find £20k to put into a S&S ISA.
Then they make no more contributions for 25 years. How realistic is it that they could then generate enough to retire on by their early 50s?
Not at all in my view.
If they want to achieve £50k p.a. in real terms spend in 25 years then, with a 3% p.a. perpetual withdrawal rate (basically the rule of thumb of 30x annual spend), they’ll have somehow needed to get up to a fund size of almost £1.7 mn in real terms.
Assume inflation is 2% p.a. over the 25 years, so 64% cumulative.
That turns the £1.7 mn requirement into £2.8 mn.
So 140x investment return required over the 25 years. Ridiculous. You’d need to achieve a 22% average CAGR. Good luck with that one. If you manage that as an annual average for 25 years then you’re the next George Soros or Jim Simons.
What about over 40 years? Well, now you’re not retiring until 65, which rather takes the E out of FIRE there.
Even then you’d need, over a whole four decades, to get to over 13% p.a. average returns.
We’re now into the realm of the just about possible but really pretty unlikely.
Amateur investors have done it before, but there’s no way anyone should plan on being able to do it.
We (both 60ish, working p/t plus family responsibilities) recently downsized from a 4 bed, old, stone, detached house to a 3 bed bungalow with more mod-cons (double glazing, insulated walls and floors etc) and a much smaller garden. Banked £250k, less SDLT, legal and moving costs, etc (c. £20k). Lower council tax, cheaper to heat, run, and maintain.
But everyone who viewed our perfect family home (open plan living area, snug, office, wired internet, mezzanine in garage, large garden) was older than us, and the couple who bought it 20 years so! They immediately employed gardeners, cleaners, decorators etc to maintain it. Working families with children generally simply cannot afford ‘family’ homes any longer.
We lent the saving to our daughter to enable her and her family to afford a proper family home!
@Delta Hedge #35 CoastFire isn’t quite as rad as a one-off £20k being your ticket to ride 😉 They postulate achieving $800,000 by age 35, and then you are done with this pension saving lark until you retire at 65 on a $2.5mn pot yielding a $100k pa income. All in today’s money real value. I used the CI calculator on here to try that and the 30 years uplift presumption ain’t bonkers
They’re still retiring at 65, but more to the point they are saving most at periods in the life stage when money is exceptionally tight. And if you decide to have children in your 30s, unless you moonlight doing bank jobs you’re out of luck.
More to the point there are many vicissitudes of life along that journey from 25 to 65, to bimble along without encountering any of redundancy, divorce, disease, destitution may have been possible in 1950s America, 2020s not so much IMO.
Intriguingly if this were an ISA thing then 10 years (25 to 35) of ISA saving at 20k p.a. uplift 4.5% pa they end up way short at £300k. Though in fairness since they are relaxed about early retirement they they may as well use a SIPP, then they can save faster. Assuming they can live a monastic existence in London under the railway arches or in a Big Yellow storage unit.
@TI #22
> I was actually excited to use it properly for once, as the proportions are very close to one in ten
Ah, but that one in ten is the survivors who still get their WFA. Your decimation takes out 90% of the current WFA recipients. If only 1 in 10 WFA recipients were canned I don’t think the headlines would have been worth the political gamble. Rome would have had no army left in pretty short order if they took ’em out at the WFA removal rate
Before council houses existed, and still in other countries not distorted by it, it was normal for multiple generations to share a house, that’s a natural economic equilibrium and now that we’re not building many more council houses, we’re naturally drifting back towards that. Council houses increased people’s expectations of having their own home to a level that the economic value of people’s jobs simply can’t sustain in the long run.
@MNartin: “We lent the saving to our daughter to enable her and her family to afford a proper family home!”
I think I’ll suggest to Ms Reeves that she tax you on the imputed interest on that loan. There’s a black hole to fill, don’cha know.
I’m probably missing something obvious, would welcome a correction.. Doesn’t means testing exclude the primary residence? House-poor pensioners are exactly who would get assistance, while renters without a ring-fenced asset have their savings whittled away.
@Martin T
What a great thing to do and how money should be utilised IMO.
The Guardian editors must be reading Monevator.
https://www.theguardian.com/money/article/2024/aug/17/former-sunak-adviser-urges-labour-to-introduce-wealth-tax-on-housing
The WFA I can’t bring myself to object to restricting as a measure on it’s own; the value is either critical to a small number or relatively trivial to another group.
However my concern is it’s the canary in the mine with regards to eroding, abolishing or means-testing the state pension itself. I have some misgivings about the ‘death by a thousand cuts’ approach to what I’m sure can’t really be an intentional building of disincentives to prepare for retirement.
It may be anecdotal, but when I’ve gently mentioned retirement planning to people at least some responses have been a riff on “there’s no point paying in to a pension. You just lose it to care fees. If you don’t have anything you get it paid for you”. The whole concept of any savings to the exchequer vanishes if we build a corpus of people who don’t prepare and normalise planning for total state dependence.
(of course, a larger proportion has been a riff on “bore off, can we talk about something else?” or “Oh I know a guy who made loads on NFTs, that sounds much better”)
@Ryan Thanks. We’re looking forward to Christmas dinner round there…!!
> Understood but personally, I would look to increase inheritance taxes if I was Rachel Reeves.
I doubt very much this is an either/or situation for RR – rather “all of the above” given the state of nation’s affairs.
Speaking of tax rises – which are inevitably coming – this week The DM/TiM were bandying around once again the cull of higher rate pension tax relief in favour of a “fairer” flat rate scheme. This seems to have escaped your otherwise superb round-up.
With the new tenant of No. 11, The Treasury now have fresh ears to receive this idea and with a sizeable hole to plug, I wonder if Reeves will be able to resist the temptation. Doing so obviously wouldn’t force any current/near pensioners to downsize but would be a radical shake-up. I’m starting to form the view this is “when” now rather than “if” given how wedded certain elements of the senior civil service seem to the idea.
Martin T makes a good point, the two people bidding for the large house we downsized from were both boomers, 15+ years older than me, and one from the other side of the country. Their kids (who would have been in their 40s) were not moving in with them. It was never going to sell to a “local family”.
I’m starting to think Gary Stevenson has a point. People are going to need a top 1-2% income to have the same lifestyle as the previous generation’s top 10% earners.
There was an article in the FT a week or two ago making the case for a land value tax. Personally (and I’m a home owner), I’d like to see a form of property tax which was revenue neutral and replaced council tax and stamp duty. Maybe an annual charge of 0.5% of estimated property value or whatever.
I can an imagine the wails from the Telegraph, even though they say that the way to encourage downsizing is to abolish stamp duty.
I’ve had a long running discussion with my parents re downsizing and the barriers are psychological, not financial.
@Raheem
I agree 0.5% pa sounds about right and fair – although to be even fairer people who have recently paid stamp duty should get some credit/offset.
But in addition all adults should be making a charge for local services cf poll tax.
Ultimately it’s all about psychology and incentives. And minimising cliff edges would help enormously – I particularly like the approach of zero tax free allowance but an offsetting “basic allowance” for all close to the UC £60-70 a week. (Probably over 25s to avoid drifting laziness)
Guilty as charged. 6 bed house and kids have all moved out into their own homes. Not much of an excuse, but we do entertain quite a lot and all bedrooms are used at Christmas.
I have been trying to think what stops us from downsizing. A few things come to mind. We absolutely love the are, have a lot of friends in the area and 2 of our kids live nearby, so we would want to stay in the area.
3 or even 4 bed houses locally all tend to have smaller rooms and lack off street parking. Our preference would be to have a similar house to our current one, but 2 stories instead of 3. That would give us the space we enjoy, but lose 3 bedrooms. I haven’t looked too hard, but I don’t think there are any houses like that in the area. We also enjoy having private gardens, so would not be interested in a flat. I guess a conversion of a large house might be a possibility.
Moving is very expensive and a lot of hassle, so we would want to get it right if/when we do eventually move.
We are mortgage free and council tax is very low (Wandsworth), so the running costs are not high provided we ignore return on capital.
Overall then I would say we like where we are and feel no strong reason to downsize yet.
A 5 figure council/mansion tax, as has been suggested a few times, would certainly make us think and would likely have a profound effect on the London housing market. We have friends that definitely would baulk at that level of tax and would move, probably out of London.
Logically we should downsize. But recently when a “doer-upper” came on the market in a good location we agonised but eventually decided to stay put. The problem is we are comparing what we would get with what we have now, with our daughter at university we don’t need as many bedrooms but we currently have high standards for things like character, parking and pleasant garden space.
It may be that when we are a few years older the balance of priorities will change – but we will also depend on somewhere suitable being available.
On the other topic, basing property taxes on the current value is a fool’s game, that was the plan in 1992 and it looks ridiculous now. Better to base on something like floor area (probably also taking account of non-living areas like garages/sheds and gardens) with a valuation factor for area that could be updated annually from land registry records.
My sense of Coast FIRE was that you were mortgage-free, with a respectably large pension pot, but did not want to spend another X number of years grafting to be genuinely FIRE.
I actually did this seven years ago and, after a year long overseas adventure, I found a less well paid IT role where I finish on time and the job doesn’t haunt my weekends. Definitely the right decision for me, not least because Mrs Azamino has zero interest in retiring, early or ever!
PS – Regarding WFA I agree with Weenie, in spades. It is very unreasonable that someone who accrued 35 years of NI stamps and only receives the state pension misses out whilst those who didn’t continue to receive it. A taper would be fairer.
“Better to base on something like floor area (probably also taking account of non-living areas like garages/sheds and gardens)”
Gosh, you want us to demolish our garage? Or maybe we could report it as a very large kennel?
@dearieme, not sure where the idea of demolition comes from.
My thought was (inspired by the French system) that floor area is something that can be objectively determined, it doesn’t require second guessing what the value would have been 30 years ago. But house values also depend on outdoor space (parking/garden) and non-living facilities (garage/shed) as well as location. So you would need to add to floor area of living space a fraction of the outdoor area and another fraction of the garage area, and then use land registry data to apply an overall factor based on relative prices for the location.
But that sort of objective approach is too sensible ever to be considered.
Replacing council tax and stamp duty with an annual 1% value tax (ish) makes so much sense in reducing market friction and using the housing stock more efficiently.
To Jonathan B’s comments, if the USA, Canada, and half the EU can manage it (the valuation problem) then we surely can too. And indeed it would have a very healthy effect on the London market, getting values back down from the current 13 times earnings to something more sustainable.
This is like reading something from a socialist magazine. How dare anyone suggest that the retired should be taxed (nudged) out of their family homes? What happened to this ‘free country’!
The ‘lets tax them even more’ brigade continue to forget that the retired have already paid their taxes and continue to pay tax as they spend their hard earned in the economy whilst helping their children/grndchildren with the busy lives.
….and this extra tax for what? So another government can fritter it away without a moments thought for the future generations?
“Socialist Magazine” combined with a deep and abiding in the financial/capitalist system (ie making as much money as you can!) ?
Seems to be a tenable position for many people-subscribers to Bloomberg and FT for example
xxd09
@ Jibber
I’m consider myself borderline libertarian but something has to give:
– Houses are under taxed (non BTL)
– Houses are too expensive for many to buy and raise families
– Stamp duty penalises moving around the country and barely applies in some regions
– property taxes seem to work in the most successful economy the world has ever seen
Winners and losers are always going to happen – massive untaxed wealth gains from property need to give back, and give back consistently not just a bit at death for a few, and stamp duty perhaps on sale.
Personally I’d be worse off but I can see the fairness in it. For those who genuinely unable to afford it then let them roll it up for settlement on death.
Or we could simply have flat taxes on everything including personal property gains, with tax payments on account every year, if that’s more palatable
Re : annual land value tax at 0.5% or 1% / winners and losers
I am in principal strongly in favour of a reform along these lines. However for many people it would be a hefty blow.
For me, at 0.5% of property value, the annual cost could be around £7,500 compared to Council Tax which is just under £2K.
£15,000 at 1%.
I am a basic rate taxpayer who bought in a (then) run-down area of NE London 20 years ago and although – of course – I am sitting on a ridiculous paper gain, I still need somewhere to live. And although I can see the appeal of taking the ill-gotten gains and hightailing it to the countryside, my children are at school here, my job is here, my cultural life is here, and my friends are here – so relocation would be a challenge.
But then, so would a tax which (at 1%) consumed around 5 months worth of my take-home income.
@ Smautf
Nice work on the ten bagger (or similar) – your comment and concerns are very reasonable, as is your recognition that the gains are “ridiculous” and unearned.
Simple solution – the state takes 1% of your property pa if the tax isn’t paid, and rent is paid on the shared equity. Say 2-3% rent on 1% of £1.5m so £300-450 per year (for each 1% owned).
London prices would probably adjust nicely and people would move around the country according to their appetite and living expenses.
Ps alternatively, real gains on private residences could also be taxed similarly with a bit of effort.
I remember reading a report on how during winter cold spells elderly people often die of cold in the UK (as compared with e.g. Sweden where apparently they rarely do). I wonder how many extra deaths the withdrawal of the WFA will bring about? The Treasury civil servants have probably estimated a figure. Those requesting this information from the government include Lord Sikka, a Labour politician, who said “Last year, 5,000 pensioners died because of the cold, and being unable to afford heating. …”
(https://www.express.co.uk/news/politics/1937118/Pensioners-rachel-reeves-winter-fuel-payment-fears)
The WFA money that was to have been paid to pensioners will presumably go towards the higher than inflation pay deals for public sector unions. It is obvious where Labour’s priorities are!
I don’t disagree with you as such @wireless, and I was quite surprised that RR went for a move of such poor optics to save just £1.4 billion p.a.
But, and without meaning to sound too cynical here, political parties serve the interests of those who support them with their votes, their time and their money.
So in the 2024 GE the age at which a voter became more likely to support the Tories rather than Labour was 63 years and upwards.
The Tories are funded by the very wealthy (centi-millionaires/billionaires) and their activists (the paying 170,000 membership, under 0.3 per cent of the adult British population) are (according to the FT in 2022) 63% male, 95% identifying as ‘white British’, 80% of the ABC1 socioeconomic groups and 42% living in the living in the south of England outside of London, roughly twice the proportion of the wider population.
So, that’s the cohorts who the Tories look after and represent.
For Labour (366,000 members, less than 1% of the adult population) their membership is disproportionately younger, more urban, skewing a bit more northern, more likely to be female, more likely to be a graduate, less likely to identify as white British, much more likely to be public sector.
Similarly but less starkly so for Labour voters.
And whereas the Tories are bankrolled by ‘entrepreneurs’ / ‘plutocrats’ (according to your point of view) Labour’s paymaster are the Trade Unions.
Each party looks after its own. Fact of life. You can argue for which is better or worse, but that’s the reality. Politics is just the means by which these loose coalitions of groups vie for resources.
Sometimes one coalition of groups is ahead, and sometimes the other.
It’s not a question of whether a given decision is, in some sense, right or wrong. It’s about power – how it advances the interests of one coalition over the other.
For a long time (14 years) one element of the Tory coalition had it their way – the elderly with Brexit and the triple lock – and now they’ve lost their power for the time being, and another coalition’s interests get taken care of instead.
Best advice to the Tories and their supporters is to make their party electable again, by adding to the breath of their support, not taking away from it.
Until then expect those who don’t (statistically) vote Labour to be in for the same disadvantaged treatment as those who (statistically) didn’t vote Tory between 2010 and 2024.
@Delta Hedge — I’m not convinced everyone votes with their self-interest the way you outline. I know I certainly don’t, at least from an economic/financial perspective. And the evidence of changing voter trends seem to be with me.
Both the US Democrats and the UK’s Labour has skewed more towards urban university educated professionals at the expense of working class blue collar style workers. In the US that’s seen with the MAGA types, here we had the shift to the Tory right / Brexit / ‘blue wall’ in the North.
To some extent (certainly in the 1980s) voting Conservative despite being young and working class might have reflected economic aspiration. I’m sure that’s still true to some extent (all of these points are always generalisations, to the disdain of whoever feels mischaracterised individually). But I think it more now reflects votes being for social reasons, following the economic consensus that had been reached as typified by New Labour / Obama. (Grossly simplified: markets and capitalism works and greed is good provided you’re ready to tax and distribute it to pull the others up behind you).
The coincident social consensus (broadly: let’s treat each others as equals, everyone has an equal voice) has come apart with identity politics on the left and nationalism (and lately identity politics) since the early 2010s on the right.
I believe it’s pretty clear that’s influencing voting to the same broad degree as economic issues.
Personally me and nearly all of my friends vote Labour — but we should mostly all vote Tory for economic reasons, unless you count the wider economic picture as self-interest (e.g. having a superior non-Little-Britained economy with well-educated and healthy workforce is in our ultimate self-interest).
On issues of pure taxes and investing etc, the Tories will probably tax me less, except to the extent that they’ve lately been self-harming the economy and needing to raise more taxes etc. (Covid support aside, Brexit looming large here).
I should vote for them but I very rarely do.
Perhaps I was feeling a tad too nihilistic when I typed that.
Yes, politics is more than a non-violent shadow of Hobbes’ “Bellum omnium contra omnes”, the war of all against all.
It isn’t only an expression of (supposed) ‘rational’ self interest. There is an animating admixture of forces behind the electoral coalitions of voters which includes group identification with certain common ‘values’.
It’s a symbiotic identity – the values shape the sense of group, and the group shapes the sense of values.
Personally my ‘values’ (bias/ prejudice if you prefer) skew ABC.
Anyone. But. Conservatives.
That normally means Labour.
But only in narrow terms of self-interest, then on a net basis I’d probably be better served by the Tories even allowing for the manifest misgovernance and collapse of public services in many areas (areas which I will have to rely on more as I age).
But, yeah, at the end of the day, I just can’t stand the likes of IDS, Bill Cash and John Redwood. Not very rational I know, but there you go.
One thing that I think may be objectively ‘true’ is that (for most of my life now) the Conservatives (and, at times too, ‘New’ Labour) seem to have drifted away from the ‘One Nation Tory’ pragmatism of Churchill, Eden, Macmillan and Heath into a cult of unreason, based upon an ideology of fever dream neoliberalism.
The Tories worked best when they were the anti ideology party that could stand for nothing and a bit of everything all at once. That was the arguable basis of their broad popularity upto the mid-1980s (and perhaps under Major too) and their enduring electoral success both pre and post WW2 (whilst, in fairness to them, also not completely screwing up the country as they have since 2016, if not before).
But in recent decades they seem to have made the same category error (assuming that abstract economic hypothesis exist in the ‘real world’) and adopted a closed system of absolute logic which excludes nuance, contradiction, disconfirmative evidence and epistemic uncertainty as a necessary basis for tempering policy.
And by those failings the contemporary neoliberal ‘Conservatives’ have gone down the same rabbit hole as the Marxist/ (psuedo) Scientific Socialists whom they claim to so greatly abhore.
Dr Abby Innes has nailed this mirror imaging IMO:
https://blogs.lse.ac.uk/lsereviewofbooks/2023/11/22/abby-innes-introduces-late-soviet-britain-why-materialist-utopias-fail/
https://youtu.be/hjkDQzj7X1w?feature=shared
I believe that the majority here, moguls, mavens, and like myself, freeloaders, are sitting pretty, however you arrived, it doesn’t matter. Cocooned and wrapped up, you miss what’s going on “outside”.
@ TI, you need to get out a bit more, perhaps “listen in” to the Samaritans for a year or two, for a better understanding and empathy of the aged, and their ability to cope without those basic needs that you take for granted, family, friends, and security. To be the first person that they’ve spoken to in ten days, although their loving offspring live less than ten miles away.
A few here have mentioned that they would downsize, but for the cost and SDLT. Why not use some of the gains to fund your move, and where were you three years ago when the SDLT was, for many, reduced to zero.
Apparently, the WFA was for many not needed, but I never met anyone who redistributed it back to charities. Why not have an “opt out” box. If Ms Reeves is so hard up that she has to scrape the barrel for £1.4Bn then be prepared.
But why stop there? scrap the free bus passes, do away with the blue badge, attendance allowance, Et al. Let the old walk, do em good. They already pay vat on their ‘Rollators” which they buy to remain mobile, lessen “falls” and subsequent NHS hospitalisation costs.
But while doing that, and for the sake of impartiality, why not consider the necessity to allow those families with income up to £70k to claim benefits. And why many not so well-off, tax paying pensioners are subsidising the child allowance paid to those who really don’t need it. And why continue with the unfair, discriminating pension tax relief, costing £50bn annually. Hopefully, it will be reduced to a flat and equitable rate across the board.
There must be many thousands of pensioners, who are just £5 per week “better off” and miss out on all benefits. Appreciate that there must be a “cut off” but It’s those who need your empathy, and understanding.
If on the other hand, downsizing is curtailed by the fear of dealing with the Great British Trades, I can wholeheartedly appreciate their trepidation. My very recent third shift in 6 years, have always been marred by the “no showers” who charge top prices and “cherry pick” their jobs, and personally being promoted to “electricians’ mate” to get the job done.
Don’t take it steady, think about “others”
Can I offer a huge thumbs up for the below point. This is something that Id love to see, for my parents sake, and also mine in a decade or two. Somewhere safe, well maintained, and close to amenities would be ideal. I can certainly see that being an attractive proposal that would tempt people to downsize.
‘The UK does have a shortage of high-quality, desirable homes for ‘aging in place’ as the Americans say. And what does exist seems very expensive.
Now that people are living so much longer and in many cases retiring so much richer – especially asset-rich – it’d be nice if property developers responded with bespoke communities of well-priced amenity-adjacent homes that suited ageing owners. Downsizing destinations that are just to good to refuse.
Add it to the list please, whoever is fixing the UK property market!’
One thing which doesn’t seem to have cropped up in the posts above about “massive gains”, “paper gains”, “unearned windfalls/profits/etc” (and leaving aside for the moment how government policies have contributed to property values) is any consideration of inflation.
Sure, someone’s home may have increased in “value” massively over a 10 or 20 year period. What’s happened to the value of a £ over that time (even using mickey mouse measures like CPI) ?
I doubt those “huge profits” look quite so huge now.
If anyone is talking of wealth or other taxes based on value, without a corresponding allowance for indexation, then they’re basically advocating for people to be taxed twice on the same thing, and you’re then into the whole full-on envy-communism and a wholehearted believer in: “The way to crush the bourgeoisie is to grind them down between the millstones of taxation and inflation”…
@Delta Hedge – you referenced one nation Tories like Churchhill. If you haven’t already, I’d really recommend reading his 6 volume history of “The Second World War”. There’s so much illuminating stuff in the appendixes – never mind the Nazis, it seems he had almost as big a battle with the civil (sic!) service on his hands – their behaviour was everything from bureaucratic pettifogging, to pointless restrictions, to trying to reduce payments to widows of men killed on the front line, to trying to put soldiers on half-pay when they were on leave…
Seems like the Civil Service being an utter disgrace and block on progress is nothing new – they’ve been at it for the thick end of a century, even doing their nonsense when the country was literally in a war for national survival!