System of Taxing the Purchase and Sale of Property in the UK Is Unfair - Essay Example

Section 260 of ITTOIA regulates the taxation of income from the property. According to Part 2 of s 260, there is no charge for the business of letting property. Income from land is calculated very much like any other income for taxation. It is calculated by summing up all the receipts and by deducting the allowable expenditures. Deductions that are allowed are related to mortgage interest payments and, wear and tear.

If a taxpayer is subjected to CGT on the sale of property, it would be more beneficial for him as there are more deductible expenditures and allowances available. If a small part of the land is disposed of, CGT is chargeable. But the disposal consideration is not required to be brought in until the rest of the land is sold too. The small part disposal must not be more than one-fifth of the market value of the land. Principle private residence relief (PPRR) is another very important relief under which the gain made after disposal is completely exempt when the taxpayer’s own home is sold.

This relief is provided so that people are encouraged to buy property, and the housing market does not slow down. However, the taxpayer needs to fulfill certain conditions that prove that he is the house owner. SDLT is levied on all land transactions and is not in the form of slabs i.e. different rates are payable for different amounts of transactions. For instance, no tax is levied on sales up to? 125,000, 1% tax is levied on sales ranging from ? 125,000 to? 250,000. This system of taxation can be very unfair.

It is because the rates applicable are payable on the whole consideration of the transaction. For instance, if there is a sale that has a total consideration of? 260,000, it would not be that 0% tax would be levied on the first? 125,000, 1% on the next? 125,000, and 3% on the remaining? 10,000. Instead, a 3% tax would be levied on the whole? 260,000. 1% tax on? 250,000 amounts to? 2,500, and 3% tax on? 260,000 amounts to? 7,800. Does this mean that the extra? 10,000 of the consideration results in an increase of? 5,300. Based on the canon of equality, this tax fails terribly.

In realty, there is not much difference between a taxpayer that can pay ? 250,000 for a piece of property and a taxpayer that can pay ? 260,000. The difference in tax rates sets them miles apart. The canon of equality suggests that a good tax is one in which every individual pays according to their ability. Another factor of inequality is that the prices of land are not set according to the area only. The prices also greatly depend on the location of the land and the usefulness of the soil. For instance, land that is at a distance from the rest of the city would be cheaper than one in the middle of the city.

For a particular consideration, one can get a greater area of land which is away from the city. SDLT is levied at similar rates all across the country. Therefore, it proves to be very unjust and unfair and defies the canon of equality.