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- Joined: Tue Jul 15, 2014 10:50 pm
Msmurf wrote:The counter argument to this is that by leasing office it leaves BBC management free to focus on their core activity of broadcasting - and if they were a private business they might also say it frees up capital.
(Just being devils advocate...)
You're not being devils advocate. You're absolutely correct!
There is a false belief in this country that somehow owning is inherently more cost effective than renting. That just isn't true. It depends on whether the capital tied down in the building can earn more money tied down in the building.. or being invested in something else. As part of that equation you have to take into account that presumably businesses are better at their core businesses, so the BBC is better at broadcasting, and the property companies are better at property management.
For residential property, the calculus is somewhat different, because we massively favour ownership in the tax system. We tax capital gains on additional properties, but the primary residence is tax free; we charge higher stamp duty on additional properties than the primary residence; and we tax actual rents, but not imputed rents. So all this means that owning a property is generally "cheaper" for a resident, than it is for an investor. The reason investors are still in the system is that there are credit constraints which prevent some people owning; owning has fixed costs involved, including of moving (e.g. stamp duty), so people who want more flexibility, will rent; and the government pays rent bills of poor people, but doesn't really pay their mortgage costs.
The same isn't really true for businesses, because they can deduct the rent they pay from their profits when working out corporation tax, and capital gains and stamp duty are charged on all properties above the relevant thresholds.
And finally, I'll pre-empt the "you're wrong" comment that often follows when I say owning is tax-advantaged compared to renting/buy-to-let.
People say buy-to-let is tax advantaged because they can deduct their mortgage interest, whereas owner-occupiers cannot. That is true. But the rental income of buy-to-let landlords is taxed, while the implicit rental income of owner-occupiers (whcih they pay to themselves) is not taxed. People get stuck here because implicit rental income isn't an actual cash flow.. but it still represents economic value (which is what we really want to tax).
Here is an example which illustrates this. We have two households - A and B - that each own a house. They're paying £1200 a month in mortgage interest, and their houses can rent for £2000 a month. The tax rate is 20%.
If household A lives in the property they own, you can think of it like they are paying £2000 rent to themselves. This implicit rent is not taxed. They are paying £1200 in mortgage interest to the bank. They cannot deduct this. Same for household B.
If household A rents their property to household B, and vice versa, things change. Household A receives £2000 in rental income. This is taxable. But they can deduct the £1200 mortgage interest. So their taxable rental income is £800, and they get charged £160 tax. Same for household B.
So it is tax advantaged to live in the house you own, rather than rent out your home and rent another one. This is why we say owner-occupation is tax advantaged, even though buy-to-let landlords can deduct mortgage interest. Its because their income is taxed, whereas the implicit rental income of an owner-occupier is not taxed.