Letter to the Treasury about CGT

David Gauke MP
HM Treasury
London SW1

Dear David,

I am writing with a proposal on how you can amend CGT in line with Coalition government objectives. I understand your wish to tax short term gains as income, to prevent conversion of income into capital and to ensure short term traders and speculators pay their fair share of tax. I also appreciate the Coalition’s need for more revenues overall. The government has said it wishes to assist a substantial private sector led revival, and wants to see the enterprise sector create more jobs and homes for rent. The government needs a policy which allows reasonable freedom for people to invest, encourages those who are responsible and who make provison for their families and their futures, and is fair.

I suggest that you tax gains of under one year as income. I would suggest you tax them at 40% for higher rate payers, as I understand the 50% rate is a temporary measure. Were you to use the 50% rate it would need to be clear that you intend to go back to 40% for both Income and Capital Gains as soon as possible.

There is some suggestion that longer term gains should also be taxed at 40% with reliefs for business assets. This would deal with one of more damaging features of a high CGT rate regime, allowing entrepreneurs to set up and grow businesses which they can subsequently sell without paying a penalty rate. However it would leave long term savers, people owning buy to let properties, and people with savings for retirement which are not held within a pension fund having to pay substantial tax. This would include paying tax on inflation. Under previous CGT regimes people were allowed to deduct the inflationary element of the gain from the taxable amount. This Indexation allowance was removed in return for a much lower overall rate. It would be unfair to ignore this in a new scheme.

A big increase in the overall rate could well damage the revenue. The US and UK have both shown in the past that raising CGT rates cuts revenue. In the case of the USA where the figures are not affected by other changes to the tax base the figures are dramatic.In 1981 the US collected $28.5 billion with a tax rate of 24%. In 1982 they raised $26.95 billion with a lower 20% rate, only to see receipts soar to $37.85 bn the next year and as high as $97.33 billion in 1986.

In 1987 they raised the rate to 28%. Revenue plunged to $59.83 billion. They raised it again to 33%. Revenue briefly rose to $66.23 billion in 1988 then plunged again to $57.3billion, lower than when the rate was 28% and well below the levels when they had a 20% rate. In 2002 they raised $55 billion with a 20% rate. In 2004 this soared to $78 billion by lowering the rate to 15%. In 2006 they were bringing in $110 billion at the 15% rate.

I therefore suggest that longer term gains should be taxed at lower rates. If you taxed 2 year gains at 30% and three year gains at 20%, higher rates than the current one, you could tax gains of four years or more at 10%. This should increase the total revenues from CGT by the second year, and offer a stimulus to longer term investment. I would myself go further and offer no capital gains after five years, to send a strong signal to the world’s investors that the UK is back in business as a favourable location.

I have been swamped with support for these suggestions, both from around the country and from Conservative MPs. It would send a strange signal if a Lib/Con government decided to more than double the CGT rate set by a Labour government. It would damage the revenues and be unfair to anyone who saves, is prudent, or who ventures their money for the greater good. We should remember that competitor countries including Singapore, Hong Kong, and Switzerland impose no CGT at all.

Yours ever


Bloggers might like to send a version of this letter to their own MPs or the Treasury.


  1. really interested
    May 26, 2010

    I first heard of this blog when you mentioned it in parliament. Good advertising.

    A well thought out argument – as always from you.

    I agree with your conclusions and hope your reasoning will be given the serious consideration it deserves.

    May I add a further comment re. inheritance tax thresholds.

    I am retired.
    I have never earned enough to pay above standard rate tax.
    I am divorced.
    I have two children who are higher rate tax payers (40%)
    I have simple needs and am a regular saver.
    I am also concerned about my health and could now afford – in extremis – to finance myself in a nursing home for maybe 15 years. All very prudent.
    If I should not need this money – by dying or remaining healthy – I would like my children to benefit from my prudence.
    However, I (or my heirs) currently face an inheritance tax of many tens of thousands of pounds.
    This is – quite simply – not fair. I am not a ‘fat cat’. I am just very aware of my possible future needs and have tried to do my best to meet them.
    The government claims to be ‘fair for all’. I am a part of ‘all’.
    This situation is not fair for me.

    I know there is nothing you can do to help me but I feel I am alone ‘out here’ and would appreciate a ‘thinker’ like you applying yourself to possible solutions. I live in hope – but to be fair, and with the greatest respect, I’m not holding my breath.

  2. jennywren
    May 26, 2010

    It is really vital that CGT is fair, does not tax inflation and does not penalise the thrify. I am concerned that there will be many defections from the party at the grass roots if CGT is increased without indexation for inflation, or at least taper relief. To increase the tax without one or other of these measures is really a sort of institutionalised theft.

  3. javelin
    May 26, 2010


    I have to fundemnentally disagree with you regarding CGT on homes. Low CGT represents a gross distortion of the housing market. I have a observation that the seeds of destruction are sewn in victory. Well this is not much of a victory – but we are begining to climb out of recession and it is very tempting to help buy to let landlords and home owners who are your natural voters.

    But it is a very short term view. Low CGT on homes means keeping house prices artifically high. It means people spending large amounts of incomes on mortgages they cannot afford. It raises highly geared risks in the economy. It means less money in the generally economy and more money tied into mortgages. It means both partners working harder and more broken Britain.

    I also think other controllable policies, such as interest only mortgages, subsidised mortgages, low interest rates on mortgages are keeping the housing market artifically high. Eventually young people will not be able to afford houses and houses prices will fall on a downward trending threatening the whole economy.

    The support from thousands of buy to let landlords you have had is only because they are interested in making money and not interested in the future of this country or homes for young people. Your persistence at supporting them really isn't helping the UK in the long run.

    1. Simon2
      May 27, 2010

      Fully agree, it is not right that people who invest in a vital resource which in short supply such as housing pay less tax than a basic rate tax payer pays on their savings.

      Can't believe anyone would disagree, especially given prohibitive prices, if you can afford several homes nowadays you shouldn't be in line for tax sweeteners.

      1. Simon2
        May 27, 2010

        Lets not forget the first 10k of CGT is tax free as well!!!

        1. David Hollins MBA
          May 27, 2010

          It is also a disincentive to improved skills, which are key to competing in the world economy. If I were to take my MBA now, I would be borrowing any fee money (£10K) at 12-16% and would have to recover that plus the time value of my studies (another £10K even at min wage levels) from income taxed at min 31%, before I even began to make any money, which would then also be taxed at min 31%. If I had put the money into property, I would either not pay any CGT for a primary home or 18% for a second, having borrowed at 2-4% and recovered all my initial outlay on sale. There is in short, no incentive toi improve your skills.

          It also produces distortion in the wider economy – we have to run int rates at 2% above our EU competitors normally (and that will return in 2011 on the basis of OECD forecasts) and there is an obsession with housing bubbles caused by loose monetary policy, which creates a false illusion of wealth.

        2. Michael Lewis
          May 27, 2010

          Completely agree. Moving my family to Asia later in the year. We bought a house in NZ. I, having paid 50% tax (and with NI even more) over the last years earnings – enough is enough.

          I could handle a high (but stable and simple) tax – what is unacceptable is my savings being used to bail out BTL investors and prop up the housing market.

          That is what QE is all about.

          That is what these comments about CGT are all about.

          Who was it that said you can't buck the market? – People who can get out will do so. Pity the economy is being sacrified to bail out BTL investors: just google CADGBP=X – that tells you the impact.

    2. Pobinr
      May 27, 2010

      For those that say landlords own property that needs to be sold to owner occupiers. There is an answer to this. Most of my tenants are in their 20's & are only in the city, Southampton in my case, for a year or two as they progress through their careers or education. They therefore do not wish to buy. It's therefore vital that rental property continues to remain available to such people.

      If prices are high then that's due to over population & lack of house building. That is something for which landlords are not to blame.

      There are already many difficulties being a landlord. If it was that easy then everyone would be one. Like any other business it comes with hassles, worries & risks, but we provide a basic essential need.
      So please stop bashing landlords. It's not as if we invest in arms companies or multi national corps that exploit people in 3rd world countries !
      At least we know where our pension money is. But we don't get a tax free lump sum like others do. Much of the gain is subject to inflation so there needs to be an indexation allowance brought back in if the CGT rate is going to be higher.

    3. Mark
      May 27, 2010

      This reply is addressed also to several other correspondents below who seem to consider that CGT is an appropriate mechanism for dealing with the house price bubble that has already inflated in this country to record levels in real terms.

      The problem we face is not trying to prevent a house price bubble, but deflating it in a manner that isn't destabilising. House prices are not going to be increasing in real terms simply because as a country no-one will lend to us to allow that to happen on top of the borrowing we already need to make. We are already borrowing some £1,238bn in mortgages – rather more than the total government gilts in issue (£943bn). Over 25% of that money is funded directly by the Bank of England via special loan facilities known as the Credit Guarantee Scheme, and the Special Liquidity Scheme. A similar amount is actually borrowed abroad (as previously were the additional CGS and SLS scheme amounts before foreign banks refused to renew loans). Banks have to find some £440bn in new finance over 2010/11 just to keep existing mortgages funded as loans that provide that money (including from the BoE) mature.

      Imposing a high rate CGT regime with a delay of a year might well lead to a selloff of investment property as owners seek to capitalise on the 18% rate, and hope to sell ahead of the herd (so they can aim to buy back in later at the bottom of the cycle). The problems with that are that a) the rate of fall would be very rapid, creating a banking crisis just when banks are facing a massive need to find funds to support existing lending, and b) it would result in turfing out tenants on the streets so that properties can be sold with vacant possession. I would guess that many of those who wish to see lower house prices are currently renting, and might find that cure worse than the disease, because it would send rents sky high, or leave them homeless. Of course, in the mean time those who manage to sell will benefit from the low 18% rate, which fails to satisfy the cries for pounds of flesh.

      As soon as a high CGT regime is in effect (whether rapidly, to prevent a selloff, or later), the incentive becomes NOT to sell at all, in order to avoid crystallising a large tax bill. That will sharply reduce the supply of properties on the market, which will tend to support prices. Again, no pounds of flesh.

      Deflating the house price bubble will require reductions in the rents paid under housing benefit (which acts to set a floor for private sector rents), thus saving welfare expenditure and helping reduce the government deficit without actually reducing the welfare of recipients. It would reduce the income of social landlords, perhaps tipping those who bought property at too high a price into loss, and forcing sales at the margin (but not massed sales). Meanwhile, those who bought at sensible prices would see their incomes reduced, but still giving a reasonable return on their investment.

      Deflating the bubble also entails returning the mortgage markets to normality. We have already seen a sharp reduction in willingness to lend on high LTV ratios, reflecting opinion on the likely level of price falls. However, because interest rates remain low (and for many, real interest rates are negative), "affordability" calculations are distorted. Just as with investment property, there is no reason why those who have overpaid or overborrowed should be sheltered from their folly. Real interest rates need to be positive, and if that leads to more repossessions, then so be it.

      By tailoring the policy responses, the pace of deflation of the bubble can be altered to avoid the consequences of too rapid a fall, and too slow a fall (or even a bounce, as engineered by Brown for the recent election). High CGT is not a useful policy for deflating house prices – the more so because it permits allowable losses for those who overpaid for houses, so that those who played the Ponzi scheme by gearing up as prices rose will be sheltered on the way down. That doesn't sound like the right incentive to me.

      1. Mark
        May 29, 2010

        Is this immoderate?

    4. Jennifer H
      May 27, 2010

      I am distressed that the growing wave of horror amongst previously died-in-the-wool Tory supporters is not being heard. I have recently reached retirement age (though I continue to work) and have modest savings set aside for when I do actually retire. One small equity investment in particular, held for 11 years, has appreciated considerably but, divided by 11, the annual gain has been modest indeed. I feel totally betrayed by the current plans for CGT, which have come completely without pre-election warning, and also feel that it is unfair that we are unlikely to have any hint of any concessions that might be made, so pushing people into panic selling.

      Whilst ranting, it seems a good opportunity to express my anger that the house I bought for £25,000 thirty years ago will partially go to the taxman when I die.

    5. a-tracy
      May 27, 2010

      I agree.

      If pensions hadn't been raided in such a short sighted way, whilst the Labour party hierarchy's pensions were set aside and protected. This mass movement of retirement saving wouldn't have been switched to small second home purchases pulling the bottom rung out of the property ladder for our children's generation.

      When you don't have a public sector pension you've got to have some confidence in the pension savings system but there is now no confidence. When you need a £100,000 pension pot to get an annual pension of approx. £3570 pa at 65 years of age there is something seriously wrong in the system.

      1. StevenL
        May 28, 2010

        LOL, that's the funny part. The 0.5% repo rate and QE 'balance sheet correction' (Mr Kings words not mine) to bail out the banks and homeowners just gets taken back when you are forced to lend your life savings to the banks and the government at ultra-low interest rates.

    6. Nick H
      May 27, 2010

      A well articulated, balanced proposal penalising short term trading, encouraging prudent financial planning whilst maximising the tax take. Oh, it's fair too whilst encouraging entrepreneurial activity.

      Why would this not be implemented as policy?

    7. Andrew
      May 27, 2010

      Your argument is quite right. Property should be properly taxed. I think there is a good case for charging capital gains tax on all property sales, i.e main residence as well. The rate could be, say, 10% – 15% accompanied by abolition of stamp duty. This would encourage investment in wealth creating assets. The take would also be much higher. Investment in property has wrecked private enterprise.

      1. Pobinr
        May 28, 2010

        Andrew – "Investment in property has wrecked private enterprise." –
        Please explain this extreme statement. It makes no sense. Big bureaucratic government has along with banks that only back dodgy city deals but not lend to businesses have hit provate enterprise.
        You say you even want a tax on main residence appreciation. Only problem is in the long term house prices only increase at the rate of inflation so that's not a real gain. So now you want people to be taxed on inflation on their homes !!
        What next – a tax on air or water perhaps ?

    8. stephen allsopp
      May 28, 2010

      The government's proposal to tax capital gains without any indexation or taper relief are the equivalent of banning inflation adjusted increases of worker's pay and as such are no more than gradual theft of property.

    9. stephen
      June 10, 2010

      You are confusing the high cost of housing with the low level of income – if incomes were higher housing would be more affordable. Why should investors be taxed at all on gains – They don't go in to the market to be philanthropic – and why should they be. Taxing gains on investments is just freeloading on the back of risk bearers. Most of these arguments are based on petty jealousy. Investors spend and invest again when they release gains – that's where wealth and economic growth comes from.

  4. Jack Ingram
    May 26, 2010

    That last line sums it up Mr Redwood. Good luck with my future.

  5. Salim Secretary
    May 26, 2010

    Dear John

    I agree with your proposals entirely. It is well balanced and properly though through to acheive the correct outcome for tax revenue and savers/ investors.

    Thank you for championing this.


  6. Nick Jones
    May 26, 2010

    Dear John,

    As a life long Conservative voter, party member & local activist, thank you so much for contributing your considered letter on the subject of the proposed revisions on CGT.

    Like many Conservative supporters I am retired & apart from my RAF pension, rely on my long term share investments to fund my retirement. Your suggestions make a very positive case for protecting the investments of people like myself.

    Good luck for future progress in this worthy cause.

  7. Michael Lewis
    May 26, 2010

    Mine would be:

    ‘ Stop QE, leave 40% CGT on BTL properties – its QE and other liquidity schemes to bail out BTL and otherproperty investors that has stuck the country into a mess’.

    Savers shouldn’t pay tax on their savings, that goes for stocks in addition to savings accounts. But, if I hold say – Brit American Tobacco – I don’t expect the government to step in and prop up the stock price if the management make a mistake.

    Similarly, I may hold some BP shares – again I don’t expect the government to take money from savers and bail me out of a falling stock price.

    Yet the last government did this for property investors. Now, if we have 40% tax and no QE, I’d be happy with that – its a step in the right direction. The next step would be to bring down that rate when possible.

  8. stephen redfern
    May 26, 2010

    Thankyou for this Mr Redwood,

    20 years ago, having had my pension churned a few times, I realised that it would not possibly make the returns promised. Later, even htis rate was reduced by Brown’s tax grab.

    I invested in 3 slum houses in 1992, after redundancy and have renovated them with my own bare hands over the years. Over 60 singles and families have had good short term accommodation over the years. The return on capital has been 5% but recently the need to comply with illogical regulation has reduced return to 2% to zero.

    Real capital increase per house is £140k but with inflation £230k. I would be taxed at 40 or50% on almost all of the £240k In effect the rate would be double in real terms.

    Please explain this to our ‘less than splendid’ PM.

    1. Eugenie
      May 28, 2010

      Thank you Mr Redwood
      We invested in a second property with our redundancy money so that we could have a pension. We are at pensionable age now and are extremely worried that this new Government is going to punish us for our prudence.

  9. Robert K, Oxford
    May 26, 2010

    Thank you for an irrefutable argument against the proposed increase. This message needs to be spread far and wide.

  10. Michael Fuller
    May 26, 2010

    Please delete last sentence of my comment as don’t want to suggest impartiality.

  11. Nick
    May 26, 2010

    Why say tax gains?

    As far as the public is concerned its a loss.

    It just shows that your a little schzophrenic at times. In this case you've your government hat on. Extracting money out of the public is a gain. Something positive.

    For the taxpayer its a negative


  12. MaxVanHorn
    May 26, 2010

    John, if they don't listen to the economic argument and follow their political/personal agendas they are finished.The Conservative electorate will never forgive Cameron for this betrayal.If he gets this wrong, the conservative party is history.

  13. Gordon Stuteley
    May 26, 2010

    Dear John
    I agree almost word for word with your letter. It would seem grossly unfair to tax (at 40%) someone who has been investing in a property for 25 years as part of their retirement planning on what they gain over that period – and only charge someone who makes a similar gain in a single year. Taxing the gain at 18% was acceptable: your idea of giving 100% relief for long term investments sounds great!

    Good luck with your campaign.

  14. Michael Fuller
    May 26, 2010

    Here's hoping they see sense. I've been warning of this for months, only to be told that there is no hope of the Lib Dems getting elected. Well their policy has been. (sentence deleted as requested)

  15. Lola
    May 26, 2010

    Agreed. being copied, with comments, to my MP Tim Yeo and to Ben Gummer MP for the town where my business is.

    This policy is outrageous. It takes more money away from modest investors who have already suffered under Brown. These are people who have lived prudently and sensibly all their lives and generally gone without toys and luxuries to put away money for their later lives. To confisacte it from them is a scandal,a nd totally against any form of natural justice.

    If there is no money left, send a bill to Gordon Brown and New Labour. They lost it all. They can pay it back. And if that means every Labour member and Labour voter working for the rest of us for the rest of thier lives – tough.

  16. stephen redfern
    May 26, 2010

    Oops. Last figure should have been £240k.

  17. Jeff L
    May 26, 2010

    Excellent letter to David Gauke – thanks.

    Stealing over 50% of the paper gain on my second home (part of my pensiopn plan) without any sort of relief for inflation would be theft and actively encourage people not to invest or make provision to look after themselves.

    If the government are sincere with their desire to cut off income to capital drift, but still encourage responsible investment then they will have to agree with your proposal, or something very close to it. If they don't then their motives are different from what they have said and people would find it difficult to trust what this government says in the future. This would not be a good start to "a new style of government".

  18. Lynn Woods
    May 26, 2010

    Thank you for this letter – it sets the issues in perspective and highlights the crucial distinction between the need to regulate those who manipulate the market to disguise conventional earnings with equity; and those who have genuinely created wealth through entrepreneurship with all the long-term endeavour and enormous personal risk that that entails.

    A partner and I established a business in 1994 which (because of our readiness to plough back everything we made into growing the company) took seven years to turn a profit. By 2008 it had gone as far as it ever would as a "lifestyle" concern and it was acquired by an AIM-listed entity. I and the other Principals of the business chose to accept a mix of cash (at 10/18% CGT) and equity upon which CGT liability has been rolled over. That is my pension fund, and as an aside it is the reserve for looking after my wider family and a number of causes that I champion. A time-related sliding scale of tax liability on that stock would be a far fairer way in which to recognise the degree of personal commitment and risk-taking that went into developing the business, from scratch, over 16 years; especially so if a mechanism is introduced to recognise that our investment journey began not two years ago when the current equity was acquired, but 16 years ago when the tap roots of the business were set down.

    It should also be kept in mind that successful businesses contribute enormously to the economy in generating tax revenue through the creation of employment (we had a staff of 150), VAT on turnover and CT on profit. My rough calculation suggests that over those 16 years we generated c£7m in income tax and NI, c£3m in corporation tax and c£13m in VAT. Is it too much to expect a bit of relief from CG tax-grabbing having done so much for the national economy?

  19. S Cader
    May 26, 2010

    Dear Mr Redwood,

    Thank you for bringing some common sense into the CGT issue.
    CGT at 40% on the long term asset holders including buy-to-let owners is a travesty.
    The BTL entrepreneurs get attacked from every side.
    When it suits the tax man they are business people and when they try to seek any form of relief they are treated as non business amateurs – with tight money and relatively very high interest rates on mortgages, cost of adhering to legislation including deposit protection, EPC charges, land lord certificates, fire regulation, insurance, and various others plus losses on voids under the present economic conditions, tax on rental income with tight control over allowable expenses.

    The coalition government may not achieve their objective of higher tax take with a “threatened”/actual 40% regime because we are unlikely to see a great rush to benefit from the 18% relief due to the present adverse market conditions.

    What probably would happen is for long term asset holders to delay the disposal of capital assets until conditions improve (tax and otherwise) thus “robbing” the treasury of their revenue!

    Your suggestions are very valid indeed and I support you wholeheartedly.

    Many thanks for standing up for common sense.

    Yours sincerely,
    S. Cader

  20. Mike Roberts
    May 26, 2010

    I have an alternative suggestion. It would retain the feature of taxing short term gains as income but not penalise long term savers.

    Tax non-business gains at 40% but when an asset is sold reduce the sale proceeds by 2% for each whole year the asset has been held. For example, an asset sold for £20,000 held for 9 years: sale proceeds for CGT purposes £20,000 less 9×2%x£20,000 gives £16,400. With the caveat that no loss can thus be created.

    And retain the £10,000 CGT-free allowance.

    1. andrew rickson
      May 26, 2010

      Thank you John for your sensible letter to the Treasury. my wife and I have invested every penny we could scrape together in buy to let and holiday property to save for our retirement and basically will be beggered if CGT is increased as is proposed. I too heard Will Hutton's stupid comments on Radio 4 at lunchtime. He doesn't understand that (a) Private pension saving for people on low (sub £20k.) incomes is pointless and risky – the returns are pathetic. I paid £200.00 a month into a private pension for most of the 90's and will get back exactly what I paid in unless I live for another 40 years. (b) People who invest in property usually add value to the property by improving it, so potentially it increases in value by more than inflation/market increases/ pension investments. Often these improvements are largely undertaken by the investor themselves, working for nothing, which of course cannot be offset against CGT – I estimate that my wife and I spent 3,500 hours doing up our last two houses. Finally I think that increasing CGT as proposed will have an appalling effect on local economic development. We spent about £180,000 doing up our last 2 houses. Nearly all this money was spent locally in our small South Wales town, going to local craftsmen and the local builders merchant. We wouldn't have done it if we thought we might have to pay so much CGT Best wishes, Andrew.

  21. Ex Liverpool rioter
    May 26, 2010

    Your making Waves John, you made the BBC website!


  22. Alex Sabine
    May 26, 2010

    I think this is a constructive suggestion that the Treasury should consider carefully.

    That said, we need to look at the CGT plans in the context of the government’s wider taxation objectives.

    As an economic liberal and ‘Orange Book’ Lib Dem, I support the coalition’s plans to (a) simplify the tax system and (b) reduce the tax burden on the low-paid, who now pay a higher proportion of their income in total taxes (direct and indirect) than those at the top of the income scale.

    I also think there’s merit in the argument that, given the austerity and spending cuts that inescapably lie ahead, it’s important to cushion the impact on lower earners by boosting their take-home pay.

    Over time I would like to lower the overall tax burden rather than just redistribute it, but this unfortunately isn’t affordable at present.

    It’s therefore a question of priorities. The number one priority has to be to tackle the deficit, but if there is any scope for tax cuts it should start by easing the burden at the lower end of the scale and, in conjunction with reforms to tax credits and benefits, seek to improve work incentives.

    I thought raising the income tax personal allowance to £10,000 was the most appealing policy in the Lib Dem election manifesto, but doubted it was affordable in the short term. So I’m reassured by the more realistic coalition commitment of raising the personal allowance in real terms each year towards the £10K target.

    Of course, £10,000 in 2015 will not be worth what it is today, and we would have expected the personal allowance to rise in line with indexation in any event.

    So this means the cost of this income tax cut will (a) be phased in, reducing the need to recoup large amounts of revenue quickly, and (b) will be considerably less than £17bn (in real terms) by 2015.

    It would be nice to do more, but it simply isn’t affordable in this fiscal climate, so I think real-terms rises in the threshold is the best we can hope for. The alternative would require punitive and ill-conceived tax rises elsewhere, rather than more modest rises that could also be part of an overall simplification package.

    Now, even this – more modest – income tax cut has a substantial ‘price tag’ attached in terms of the Exchequer cost (although I believe the improved work incentives may offset it to some degree over time). Clearly how much it ‘costs’ will depend on how big the increase in the personal allowance is, but we could be talking something like £5 billion initially eventually rising to perhaps £10-12bn (in today’s money).

    Given the unaffordability of a net tax cut in the present circumstances, there is a need to recoup this lost revenue from somewhere. I think it is reasonable to look at the anomalous CGT regime, tax relief on pension contributions (although not in the way favoured by the Lib Dems pre-election – ie we should reduce the over-generous ‘lifetiome allowance’ but leave relief at marginal income tax rates, as the IFS suggests) and reform aviation tax broadly in the way the coalition envisages.

    As you acknowledge, John, the current CGT system does present a pretty obvious opportunity for income tax avoidance (through conversion of income into capital) given the disparity between the 18% rate and the 50% top income tax rate. Taxing gains at marginal income tax rates would clearly address this, although would doing so for only one year solve the problem? In principle, though, I agree that you could make a distinction between short-term gains and longer-term gains and tax the latter gradually more lightly until CGT was tapered away completely after, say, 5-7 years.

    As you say, the alternative policy of also taxing long-term gains at marginal income tax rates would hit those saving and investing in shares, buy-to-let properties etc, even if there was a distinction between business and non-business assets. That said, it was only a couple of years ago that the rate on these non-business assets was lowered to 18% anyway, so it’s hardly revolutionary.

    Regarding the revenue yield of CGT, I take your point that this is a tax where a lower rate can lead to a higher yield (given the discretion involved in deciding when to realise gains) – although the yield can also jump up and down a lot depending on the performance of the stock market, and that factor together with the need to adjust for inflation complicates the figures you supply above for the US.

    I suspect the coalition will take your advice and not raise CGT even on short-term gains as high as 50% – I think they will draw the line at 40% and deem this to be close enough to income tax rates. I also hope they will reintroduce full indexation, which will ensure that the tax is only on real and not inflationary profits (this was the quid pro quo in the Lib Dem policy as far as I recall).

    Doing both of these things will ease the concerns and return the system to something quite like the one introduced by Nigel Lawson (but with more generous relief for entrepreneurs).

    Nonetheless I think moving to a US-style system, as per your suggestion, of taxing short-term gains as ordinary income and long-term gains at a lower rate (either a single rate of, say, 20% or tapering away gradually from 40% to 0%) deserves serious consideration and I hope the Treasury looks at it.

  23. Ex Liverpool rioter
    May 26, 2010

    Yes John http://www.telegraph.co.uk/news/newstopics/politi

    How about a plan that would see SAVERS NOT paying any tax on their savings?………..so we could rebuild our capital base?

    Like to see a return to a REAL return on savings as well!


  24. Julian White
    May 26, 2010

    I am not a natural supporter of John Redwood, but I must say, this is a superb idea, encouraging investment but limiting inflationary pressures.

  25. Tom Atkins
    May 26, 2010

    Mr Redwood.
    Thankyou for writing this letter.

  26. Tom
    May 26, 2010

    Just interested as to how you calculate long-term gains as opposed to short-term gains. What makes a gain one-year, as opposed to two-, three- or four-year?

  27. G Chen
    May 26, 2010

    Thank you, Mr. Redwood, for using your influence and position to speak out against the proposed substantial increase in CGT, which would be so unfair to middle class second property owners like myself who have worked and saved hard to be able to invest in the buy-to-let market. I am appalled that the this so-called Tory government is currently set out to raise CGT to as high as 40%….particularly as the 40% tax threshold is so ridiculously low in the UK, kicking in as it does when people are just reaching middle class income. I voted Tory, but not so they could steal my hard earned capital gains and other earnings for plugging Labour's yawning budget deficit. The Treasury would do better in the long term as you suggest by actually cutting CGT, so more middle class taxpayers like myself would be encouraged to invest in the hope of earning some decent return for the risk they place in the property market. And, the property market is strengthened by more private landlords rather than building more costly public housing associations or council estates. Pls continue to fight against this ridiculously unfair and economically detrimental hike in the CGT.

  28. Jimmy
    May 26, 2010


    I'm in 100% agreement with this letter. The fact is that under the proposals of CGT going up to 40%, only the VERY wealthy will bother buying shares. This is because they will be able to buy at least 5% of quoted companies so they can use this to qualify their holdings as business assets. Also, they are less likely to sell their assets on retirement as they can afford to hold on for as long as necessary. It seems ridiculous that if you take a risk then you should give up almost half your gains. How on earth will any company manage to get substantial equity financing?

    The government have said the right things in terms of this recovery having to come from the private sector. It now needs to act on this. Setting appropriate tax rates is vital and I agree that CGT tax needs to promote investment.

  29. savonarola
    May 26, 2010

    Mine will go to Anne Milton in rather stronger terms.

    Introduce CGT along LibDems lines and my resignation follows along with cancellation of DDebit and a refusal to participate in the ad hoc requests for donations.

  30. Jonathan
    May 26, 2010

    Thank you so much for your principle-based approach.

  31. Michael
    May 26, 2010

    The BBC reported your blog post on the lunchtime news.

    I wonder why?

  32. Gavin (propapolitics
    May 26, 2010

    John, i have to commend you on your letter, outlining some very surefire significant options that the Co-Gov can take, and i am in complete agreement. The figures reported from the states is crucial evidence, and well done on the research. I hope the government takes a serious look at your proposal. It is a sound, and well though out offer. Very pleased to see somebody using their brain, and brawn!

  33. G Adlam
    May 26, 2010

    I totally agree with these sentiments.

    Have already sent my MP, Simon Kirby, my concerns for his consideration. I hope more people will deluge their MPs with concern to get pressure applied to Treasury team to go easy on this one for genuine savers trying to provide for their futures (and their dependents) without seeking aid from the State.

    The lazy and profligate are doing well enough, for gods sake don't kick us that have been thrifty and played by the rules.

  34. Anand
    May 26, 2010


    Should you not clarify whether US rates of CGT when increased led to less take from CGT but more take from direct income taxes as people feel its not worth directing income to capital investments?

    Its not right to simply say dropping the rate increased CGT and vice versa without factoring in the opposite side of the coin to this behavioural change.

    The bottom line is that currently the very wealthy divert large chunks of income into capital investments such as taking income as shares from their employer. This really is unfair when they should be paying as higher rate taxpayers.

    For your average middle class earner, we have ISA's which can accept circa £8000 annually into a vehicle which pays no tax whatsoever upon liquidation.

    If you are sticking away more than this every year and going over your capital gains allowance on liquidation every year I think you fall outside middle income personally.

    Don't even get me started on Buy to Let, which has been a massive contributer to our present unsustainable housing bubble. Allowing general pool housing to be treated as capital investment was a stupid idea and it has caused much hardship for middle income earners trying to either rent at a reasonable cost or buy within their means.

    House prices were just fine before 1997, shame we cant go back in time.

  35. Stronghold Barricade
    May 26, 2010

    At an opportune moment like this, I do believe that you should be looking at being fully radical with all the tax systems because of the tinkering of the last 13 years. Like:

    Business rates that are a block to small business expansion

    Council tax that is a non-discriminatory tax that does not take into account the ability to pay

    I do, however, welcome such small tokens as the CGT and the increases of persoanl allowances.

    The answer has to be, however, a smaller state, and a bill which stops any incoming administration from ever spending more than it earns in any one cycle, and let the cycle be lead by the Bank of England rather than the politicians.

  36. marcus aurelius
    May 26, 2010

    What splendid good sense. Let's hope the government is listening.

  37. A.Sedgwick
    May 26, 2010

    Given that CGT is a necessary tax this plan makes good sense. It is disappointing that the new intake to government seem unable to grasp that higher taxes means lower revenue. This legend should be emblazoned around the Commons and Treasury.

    I congratulate you on the principle of this public letter – more such letters need to be sent on a variety of subjects by MPs, whose Party is in power.

  38. Paul
    May 26, 2010

    Buy-to-let properties are a simple investment, not a businesss. They create no wealth (indeed have simply exacerbated the transfer of wealth resulting from house price inflation). Why should their capital growth be taxed at a lower rate to that for interest paid on savings (albeit at pathetic levels at present), another form of investment?
    The original indexation allowance was a very sensible principle, although you might argue about which index to use and whether or not savings ought also to benefit. Moving to taper relief and then the 18% flat rate was just typical Brown/Darling fiddling, creating additional complexity and frictional cost but no real value for the economy.
    On another note, when do you think – or do you think – your friend George is going to embark on a wholesale simplification of the tax/benefits system? Top of the list has to be to get rid of the distinction between tax and NI – in which the word "insurance is now a complete sham as it is just a way of hiding increases in tax. You can't even gift-aid it away.

  39. Rippedoff
    May 26, 2010

    An excellent alternative to the proposals offered by Osborne and his LibDem colleague.
    For years Labour have penalised those who have worked hard, saved, invested and had fiscal responsibility. The so called coping classes have had to carry those who prefer to live with their hands in the pockets of others, encouraged to do so by Labour.
    The policy by a Tory Government to hit the same people for more tax to pay for past profligacies is depressingly unfair. Does Cameron actually wish to retain any natural Tory voters?

    One issue that would help people like me who run a small business is to introduce a statutory maximum period of time that large firms should take to settle accounts after which interest automatically applies. 30 days should be enough in anyones book!

  40. StevenL
    May 26, 2010

    John, please forgive me a dissenting voice here:

    I agree wholeheartedly with the points you made on employee share schemes – but see no reason why the law can't be changed so that these can be put into an ISA wrapper, £10,800 is a pretty substantial allowance.

    On short term speculation the major flaw in your argument is that spread betting is exempt from CGT and you are not proposing to bring it in line with other financial derivatives for CGT purposes.

    Your example using American statitics could be misleading (although I am in no position to judge) in that 1982/1983 was the bottom of the stock market and the Reagan/Volcker inflation busting recession – 1987 was also the year of 'Black Monday'.

    I have very little sympathy with your views that second property owners should not be taxed more on gains. Someone has to pay for the mess partially caused by the house price boom and bust and property speculators stumping up a bigger share seems reasonable to me.

    I voted for your party knowing fine well it would most probably cost me the public sector career I've been studying and working towards for 8 years now. I'm confident I'll get a job in the private sector because I have experience, but realistically it will mean a 20% – 25% pay cut starting out at the bottom of the ladder. I'm happy to do my bit because I agree Britain is in an almighty mess.

    If the tories turn out to be a party that only cares about middle aged homeowners I'll probably go Lib Dem in the next election.

  41. Sue Doughty
    May 26, 2010

    Excellent idea, I hope they take it up.

  42. Charles Ward
    May 26, 2010

    Isn't it possible that when the CGT rate increases companies reward employees through their salaries rather than with shares/options and this is why CGT revenue decreases. If under these circumstances income tax revenue increased by more than the CGT revenue decreased then raising CGT rates could increase government revenue overall.

    I agree with your proposal for different CGT rates based on the length of term of the investment but I don't think the Laffer curve argument is sound in this case.

  43. Robert K, Oxford
    May 26, 2010

    Good comments on World at One today. Clear, logical and fair, unlike Will Hutton who followed you.

    May 26, 2010

    Count us in as supporters too. Brown's taper relief was one of his few good initiatives and it would be ironic, as you suggest, for Tories to fly in the face of the evidence that a lower tax initiative produces increased revenue and greater fairness.

    After all the new government, quite rightly, is compensating the Equitable Life victims who sought to save responsibly for their futures; it would be unjust to punish those who saw investment property (or other investments) as a way of sidestepping the pensions crisis largely brought about by the Labour government. Your proposal is a fair, commercial and workable solution.

    Douglas Carswell gave you a deserved 'plug' on the Daily Politics today. With MPs such as him, Graham Brady and yourself contributing constructively from the sidelines, backbenches and select committees the new Coalition – of which we are enthusiastic supporters so far – can profit as well as be held to account.

    And the more regular ministerial visitors to this site the more likely it is that we, the somewhat neglected but still-positive 'voternity' are to be heard by Team CamClegg!
    (We are yet to test whether the New Politics apparatus includes the machinery and the willingness to acknowledge our well-intentioned comments!)

  45. NickW
    May 26, 2010

    This looks like a litmus test for the coalition.

    Are they going to tax the rich until the pips squeek thereby removing the ground from under the socialists, or will they maximise revenue and the stimulus to the economy by going for lower tax rates. ? (But I would keep 5-10% for long term gains).

    Will the coalition go blue or red?

    1. DBC Reed
      May 26, 2010

      This is certainly a litmus test,alright.Cameron has already given the 1922
      Committee a going over .Lets see if he has the nerve to face down Mr Redwood on this one.

  46. Sheelah Seeley
    May 26, 2010

    Thank you for your wonderful suggestions.

    If adopted I might remain a conservative voter.

  47. Stanley Eckersley
    May 26, 2010

    26th May 2010. The iniquity of treating capital gain and wage incomes as equivalent.

    The iniquity in equating capital gain with other forms of income, and so taxing it at the same rate, is not fully identified in John’s blog and would not be rectified by the changes which he suggests to the mooted increase in capital gains tax. Treating them as equivalent in that way would be a grossly unfair denial of reality.

    Securing a wage invokes no financial risk; all one has to do is present oneself at ones place of work and carry out ones work obligations (leaving aside those, e.g. bankers, who have only to do the former and get paid extra for doing the latter).

    Seeking a capital gain requires a monetary investment with no guarantee that gain will materialise, and the risk that loss will result. Whilst losses can be set against gains, so that only net gain is taxed, there is nothing against which net loss can be set. It is an arrangement in which if you take a risk that makes a net gain the tax man gains with you at no risk, but if you make a net loss only you loose. The clear unfairness in that can be corrected by making the equivalence of capital gain and other incomes total – that is a capital loss settable against other incomes. As that compensation would enable other income to be used as a buffer for capital gain gambling losses, the clear proper arrangement is differentiation of the two forms in recognition of their differences – risk in the one which is absent from the other.

    As the purpose of the mooted increase in capital gains tax is to scupper those who are able to convert wages into the presently lower taxed capital gain without the risk described above associated with investment, that loophole should be closed directly without robbing those whose capital gain involves the investment risk.

    Investment is a contribution to the economy which, if it pays off for the investor, should in the reality of things be taxed; but only in a way that fairly recognises the risk to the investor with none to the also benefiting economy.

    Stanley Eckersley

  48. Richard
    May 26, 2010

    Did you hear Will Hutton's response to you on the World at One? It is amazing that someone as well educated as he is can talk such nonsense, but it is worth listening to as it summarises the leftist objections to your plans and shows where the argument needs to be won: in Mr Hutton's view there are 'good' capital gains and 'bad' ones. The distinction wasn't clear, although he clearly classifies private equity gains in the 'bad' group – 'spiving'. The left needs to understand your point that higher tax rates means lower revenues and vice versa. But they also need to understand that the more the state seeks to sit in judgement about which sorts of gains and income are socially desirable and which not, the more complex the system will be, the more it will be gamed by investors, and the more mis-allocated and economically inefficient investment there will be. Is it really better to buy 10% of the shares in a small business than 0.0001% of the shares in a large one? Is it so much worse to buy a single buy-to-let property than a stake in a property company? Let's encourage the Coalition to go for simplicity, consistency across the tax system, and work towards as low rates as they can. That's the route to prosperity.

  49. Tom Knight
    May 26, 2010

    John, as a constituent I wrote to you personally about this but am taking the chance to elaborate here – I agree in broad terms with your proposal but you fail to make an important distinction between productive investments good for the economy, and unproductive ones.

    Of course productive investment (in jobs, in small business) should be rewarded not penalised. However it's important to make a very clear exception for domestic property speculation – high property values (lifted by speculators and those engaged in buy to let as an alternative to productive investment in the economy) should be actively discouraged via the tax system, as the opposite – encouragement of this sort of speculation – has only resulted in a huge house price bubble that has still not properly burst and threatens to completely exclude a generation from home ownership (hardly a Tory aspiration, surely).

    By all means lower (or abolish!) CGT for proper entrepreneurs bringing jobs and growth to the economy – and your taper relief proposal is sensible in that light – but in my view using capital for the buying and letting out of properties, under cover of unfair tax breaks, artificially distorts the housing market and disadvantages the next generation.

    If we hope to redirect investment towards growth and jobs, this sort of practice ought to be actively discouraged using whatever fiscal levers are available.

    I hope you make this clear as you debate this subject and would appreciate a clarification here on this blog – would you include domestic property in the taper relief, or not?

    1. Tom Knight
      May 27, 2010

      Come on John, can you comment on this? It's a straightforward question about whether, in your view tax breaks should support productive vs unproductive economic activity. This was an early David Cameron topic, not long after election day. It would be much easier to make the case for taper relief for proper job-creating entrepreneurs if property speculators' snouts have the tax-break trough taken away from them.

    2. Simon2
      May 28, 2010

      I would like to hear the answer to this too.

      1. Tom Knight
        May 28, 2010

        It's clear we are not going to hear John's answer on this – his silence speaks volumes. Everything I hear about messrs Redwood and Davis's discourse in this area points to giving tax breaks to landlordism over entrepreneurship, doing nothing for British jobs and British competitiveness, and in this light is utterly regressive. John I have to say you have disappointed me here. Surely you of all people must know perfectly well that the way to growth and stability in this country is productive investment improving our trading position globally, not in state subsidy of property speculation in ever-decreasing circles within the UK. Shame on you John for putting narrow vested interests ahead of the good of the nation. I expected better, I really did.

    3. Paul B
      May 28, 2010

      This is an excellent point Tom, and Mr Redwood's clarification is needed.

      A lot of comments on here are along the lines "You can't tax 2nd homes, you'll be taxing the prudent and savers".

      Hasn't the whole point of buy-to-let for a lot of 'investors' been: get as high loan to value as possible, let the tenant pay the mortgage, wait for capital gain, cash in?

      I agree with a lot of Mr Redwood's comments, but I can't see how buy-to-let can be deemed a productive investment that benefits the economy overall.

  50. stephen redfern
    May 26, 2010

    I heard Will Hutton's comments on R4. His suggestion that buy to let investors deserved what was coming because they had not put their investment into a tax free investment vehicle is ridiculous.

    I know that at least half of my friends have invested in a property rather than a pension. They decided not to use advisors after accepting disastrous advice from advisors about pensions. No-one I know had even heard of an investment vehicle to avoid tax.

    They trusted that the existing tax regime would allow for real gains and not inflationary. The latest cynical tax grab has destroyed and further trust in the government.

    1. simon
      May 26, 2010

      I think the only way of enabling the public sector and M.P.'s to "get it" is to completely scrap public sector pensions so they are in the same boat as the rest of us .

      My niece is being bullied at school and the useless head teacher won't do anything incase it affects her offsted ratings .

      And those of us who have to fend for ourselves are paying through the nose for this dross .

  51. Alexander
    May 26, 2010

    Good suggestion.

    It will deal with the "Cleaners having a higher tax rate than their bosses" issue raised during the election.

  52. Julian Dakowski
    May 26, 2010

    Dear John Redwood,
    Thank you, thank you, thank you. At last a senior Conservative has had the courage and vision to counter this amazing tax hike that :"you said you never would".
    I am having to sell my family home in London, using it to buy in the country after renting down there. I spent two years redeveloping the house myself, to build up the stock for a pension/move/business investment. The house was bought from my mother in 1989 where she lived in part and we let the rest. It will fall to CGT – that's fine – but I had calculated at 18% and have agreed to buy down here on the back of it at that tax. From that the Gov. would gain about £200K and a further £60K on stamp duty.
    If the tax goes up to what is rumoured, I would simply not be able to afford a sale; then the Gov. would get nothing! The property market will grind down and there will be no gain at all to the economy! What on earth is the sense in that?
    Give us the money and we will oil the wheels.! It will then be ploughed back in; not left stagnant.
    Please Please Please talk some sense into them. It was not the fault of the man in the street that the greedy banks collapsed. But it was his money that bailed them out. We had already given them the money via our mortgages; and now we are having to pay for it yet again. That makes it bloody THREE TIMES THROUGH THE CHECKOUT! Blood from a stone comes to mind. Nobody voted for this!

    Please John, try your best.

    Yours very distressed of Milverton, Julian Dakowski.

    1. V Nowak
      May 27, 2010

      Hi Julian
      We are in almost exactly the same boat. While running a very small B&B for 23 years, we knew from the outset that CGT would have to be paid on the small proportion of our house/home that we used for the 'business' but considering enormous house price inflation (we live in the SE) we have in fact made no actual gain on our property at all and are presently expecting to pay around £39k CGT at the 18% rate, which we have accepted mentally but at 40% or 50% with no house indexation allowance we just will not be able to move to another house for our retirement. Therefore NO CGT for the government at all! Alternatively, sell, lose out and throw ourselves on the benefit system in our old age.
      Please John, suggest taper relief or similar for people in our situation who have held properties for a long time.
      Good Luck

      1. Julian Dakowski
        May 28, 2010

        Dear Mr. Nowak,
        This is a very "enterprising" thing you have done [this B&B] and for that you have been very "entrepreneurial"! I woke up this morning with Cameron's words from yesterday RINGING IN MY EARS.
        This is the one area that he says he will recognise. The others all go on about "unearned" income being something that they want to tax [although to me using mind or body, doing or delegating – its all work]. Well your activity was part of your entrepreneurial business and for that it should be recognised in Cameron's 'telling words' yesterday. God knows how this is going to come out or be recognised but I have just woken up to the fact that for me, my business is renovation, building, development and the two and a half years taken out and devoted solely to creating this house that is now worth substantially more due to my effort/design/skills, if someone is finally prepared to recognise that this is NOT "unearned income", I for one will be delighted because other than developing the house that you live in, if you do a property up yourself you are never able to place THAT cost against its development costs.
        Well we shall all wait and see. The property is now on the market and if June 22 is a disaster it will have to come off. And, as you, the Government will lose out and no further chain of business is carried on. All mud and mire. Best of luck but remember his words and call to your "entrepreneurial" position. Yrs JD

    2. Paul B
      May 28, 2010

      Are you going to be taxed on the sale of your main residence?

  53. Stephen S
    May 26, 2010

    It beggars belief that John Redwood does not have a senior government post. Can anyone mount a realistic argument against the points raised in that letter? I doubt it.

  54. Mike Stallard
    May 26, 2010

    I do hope they are listening at the Treasury! You are right.
    I want to save up bothering our MP for when our school gets off the ground (initial meeting this week) and we need him to stand up for us against the bureaucracy which, believe it or not, is about to waste £25,000,000 on the local bog standard Comp (Failure rate: 75% at GCSE) and a further £75,000,000 on other Comps in the area.
    Paying less tax must mean higher revenue – as your figures point out. Lawyers and accountants come expensively and doing without them is often cheaper when taxes are low.

  55. Brian Tomkinson
    May 26, 2010

    Good to see that your message is spreading through the media and political commentators. I just hope that the powers that be are taking note and adopt some, if not all, of your sensible proposals.

  56. Jamess
    May 26, 2010

    Hope someone will see sense and listen to you!

  57. Mike Wilson
    May 26, 2010

    "However it would leave long term savers, people owning buy to let properties, and people with savings for retirement which are not held within a pension fund having to pay substantial tax."

    People who own buy to let properties enjoy (have enjoyed) massive capital gains as a result of inflation. Why should inflation be ignored when it's time to pay tax on those gains?

    One thing I would like people to begin to realise is that high house prices are a blight on this country. We live in a globalized economy yet we allow ourselves to pay more and more for property – meaning we have to all earn high wages to put a roof over our heads. It is madness and the sooner speculation in property was banned the better it would be for everyone.

    House prices would fall and people would need smaller mortgages to either buy property for the first time or move up to a larger property. Who would lose? The bankers – they love big mortgages, buy to let speculators and the retiring baby boomer generation – who expect the generation before them to take on massive mortgages so they can enjoy a huge tax free pay out from their 'equity'.

    No, it is time for taxation on all property profits – including the sole residence.

    1. Mark
      May 27, 2010

      Imagine a world with no inflation, where you were paid 100 gold sovereigns a year. The government takes 25 in tax, and you save 10 towards your retirement (there are no state pensions for simplicity), spending the other 65. After working for 50 years, you retire with a pension pot of 500 sovereigns – but now the government decides that should be subject to a 40% levy.

      Now imagine a world where there is 10% inflation. You pay 25% of your salary in taxes. You save 10% of your salary every year in index linked bonds so that they retain their value in real terms. Every seven years, your pay has doubled, and so have the bonds. Over your 50 year working life, your annual pay increases by over 130 times – yet it buys no more than when you started work. You retire, and now 40% of the value of the bonds is taken in tax.

      These are exactly equivalent in real, inflation adjusted terms. It is easy to see in the zero inflation case that the 40% tax is unjust. It is equally unjust in the 10% inflation case.

      Please see my reply to Javelin at the top for comments on why CGT is not the right way to try to tackle the property bubble.

  58. Simon2
    May 26, 2010

    BTL properties and holiday homes should be taxed at least 40% CGT.

    1. Simon2
      May 26, 2010

      We need to discourage the hoarding of houses which we have a widely acknowledged shortage of. Housing should be treated differently to other investments as it is a vital resource we all need, turning homes into investment vehicles which benefits a few very wealthy people is not the right way to go in a fair society.

      1. really interested
        May 27, 2010

        BTL does not hoard houses. With a BTL the clue is in the name – the house is let so that people can live in it. Owning a BTL house does not create a housing shortage – there is no housing shortage. There is a shortage of available accomodation and that shortage is not affected by the status of a dwelling as either owned-occupied or rented.

        1. Simon2
          May 27, 2010

          Second/holiday homes take houses out of the supply. BTL increases competetion for first time buyers which helps push prices up. Many FTB's are forced to rent properties they would have been able to buy 10 years ago, this is storing up trouble in the longer term not only in terms of housing affordability and increasing wealth divide, but also the finances of the new non-homeowning underclass in their retirement. I disagree with housing as a form of investment. At the very least it should reflect other taxes and should not have a special low rate as it currently has.

  59. Bruce Clayton
    May 26, 2010

    President Obama was quoted as saying that the US Government was considering abolishing CGT altogether. We pay a large pot of money into the EU. Why not start there and suspend these payments for 12 or 24 months until the deficit is under control?

  60. forthurst
    May 26, 2010

    I cannot agree with your benign view of investors owning property to let, particularly, buy to let: at the end of the last property boom, in some areas, starter homes were not available for first time buyers as they had all been hoovered up by buy to letters willing to pay any price on the assuption of continous capital gains, many of whom subsequently went bust with builders also being left with unsold flats which had been constructed solely for the buy to let market.

    It is fair enough if investors want to throw their money at the next big thing, but not if that causes a gross distortion in the availablity of life's essentials for normal people. I believe there is a need to regulate markets in order to ensure a short and efficient delivery chain exists between producers and consumers without others interposing themselves in the middle, even on the pretext of doing God's work. That would mean that houses and flats would be built for purchasers and properties to rent built for housing associations: banks would not be allowed to offer mortgages on private property unless they were for main home occcupation.

    The tax system should favour long term investment in growth opportunities, particularly businesses; houses do not grow and the government should do everything in its power to stop the relentless cycle of house price inflation which is sapping the purchasing power of consumers away from the essential and recreational areas of their lives.

    The buy to let market took off particularly when investors decided they had had enough of stock market skullduggery.
    It behoves the government to start taking seriously the need for deep seated market reform to outlaw most of the ways that those engaged in doing God's work scam the markets for equities, currencies, bonds and commodities so that pension funds and long term savers can once again see their savings grow without their being subject to continous taxation by the City or Wall Street.

  61. Matt
    May 26, 2010

    A1 stuff!

    Many people, on money purchase schemes, witnessing the stock market provide no growth over the last ten or more years, have divested some of their retirement provision into buy to let properties as part of their long term financial provision.

    It would indeed look odd if a Conservative led government were to double their CGT liability in the event that they sell a property.

  62. Andrew Gately
    May 26, 2010

    I think this is a letter that many people who understand wealth creation and the laffer curve can get behind.

    I think that the issue of Capital gains tax would be a good battleground between those who believe in capitalism and those who believe in socialism.

    For thirteen years we have put up with the politics of envy and it would be hugely disappointing if the first act of the new government was to continue this trend.

    Further whilst increasing the personal allowance to 10k is a good thing, if we leave national insurance rates to lag at 6k then we will lose the beneift in reducing regulation.

  63. Morwen Taylor
    May 26, 2010

    I completely agree with the reasoned and well researched argument expressed by John in his letter. The idea of different rats is a good one and the taxing of short term gains as income is something which was done in the dim and distant past.
    I have already sent an email to George Osborne in support of John"s proposals and maybe if he receives a deluge of similar comments he will listen to the voters who put him in office. If not, I agree that Conservatives will desert the party in droves

  64. Stefan Bremner-Morri
    May 26, 2010

    God bless you, John Redwood!

    I have always considered CGT as an abomination. How ironic
    that Gordon Brown should have lowered it to a more reasonable percentage, and the present 'administration' intends to nearly double it!.

    Good luck–a great deal of my long term investment depends on a sensible resolution to this outrageous tax imposition, but I think it is intolerable that people like myself have been left in this financial planning limbo, before a budget has even been implemented!

    Best wishes,

  65. derek
    May 26, 2010

    John-good letter. They do not seem to have any knowledge of the ? Laffer Curve when tax of over 50% is shown to decrease revenue. Current CGT allowances in relation to property allow us CGT exemption as we support our in laws in a lilttle semi bungalow-and we have done for 30 years-otherwise they would have been in a council house. Will this proposal change all that so we will now be disadvantaged fo supporting one's families. People get paid for caring for family members-we have taken considerable responsibility and may well get punished for it!

    In relation to CGT and business we buy shares in companies and have participated in rights issues. We have helped employment in doing do. If the carrot is removed-why bother. This will adversely affect investment. Gordon Brown took all our dividends from our pension plans and now the Coailiton will put another nail in our coffin in our efforts to avoid welfare in our old age. Will they make the losses non deductible; will they remove the inflation element-the bracket creep phenomenon. Ther will be no incentives left if all this goes through. I hope your efforts will put some sense into this debate. Best Wishes

  66. Chris J
    May 26, 2010

    I am not rich. I have no significant annual income from property. I do not have a second home; my investment in property is my livelihood, providing local people with a good home at a time when there is a local demand for more accommodation which the local authority is unable to satisfy. What I hope for is an eventual capital gain as my pension.

    If Capital Gains Tax were to increase to a flat rate of 40%, I believe it would hurt a large number of people in a wide range of financial positions. It takes no account of size of the gain, nor the years of ownership over which the gain accrues. Editorial claims in newspapers, such as the Times, that the increase will bring the tax into line with Income Tax are wrong. Capital Gains Tax has no lower rate bands, taxes inflation and taxes the fruits of ten or twenty years' effort in one hit. If the threshold is removed it will be even more brutal.

    It seems unfair that the Liberal Democrats should exert such degree of influence on policy after having come third in the election, with millions fewer votes than the Conservatives and not even one fifth as many seats.

    I agree with the last sentence of your letter to the Treasury.

  67. Matthew Reynolds
    May 26, 2010

    Well done John ! Could you please sit Dr Cable and Mr Clegg down and teach them what the Laffer Curve is all about ? You are talking a great deal of sense on this ! David Laws and George Osborne are a pair of very sound gents on economics who have worked in business and know how the land lies.David Cameron has a large number of people in his constituency who will be very cross about this crazed CGT hike.We need to tempt the rich into the UK to get revenue for deficit reduction as well as higher investment,job growth etc- the Redwood CGT plan will work in this regard !

  68. Stephen W
    May 26, 2010

    Just wanted to add my support.

    This is an excellent plan that ticks all the boxes. It raises revenue and discourages speculation but without unecessarily harming long term investment.

    I sincerely hope the government takes it up.

    Well done John.

  69. gac
    May 26, 2010

    Great ideas, great letter, as to be expected given the author.

    Problem is, though politicians continue with the faculty to read when they become Ministers, they lose all ability to translate what they read into knowledge.

    In the modern vernacular – it does not inform them!

    I always assumed Mr Cameron and Mr Osborne had more nouse than this – maybe it is only a matter of time?

    Hopefully not too late!!!!

  70. Oliver C
    May 26, 2010

    Absolutely agree. A basic CGT rate of 40% is an unfair tax on ambition and opportunity.

  71. Michael Andrews
    May 26, 2010

    The core problem is that CGT on long-term assets is a tax on 'paper' profits rather than 'real' profits. Therefore it is largely a tax on inflation.

    Wouldn't it be possible to calculate the 'real' profit made when long-term assets are sold and tax this, instead of using various sliding scale formulae?

    The same principal could be used for taxing savings interest.

  72. Pobinr
    May 26, 2010

    One can't blame the government for wanting to defeat income shifters.
    If Mr Darling had left the CGT system unchanged then this tax dodge would never have arisen. That is to say speculators who pay themselves in assets rather than income so as to dodge higher rate income tax.
    However to tax investment property that is managed & maintained for years in the same way as shares bought & sold after 5 minutes, would be robbery.
    If a higher rate of CGT is not accompanied by the re-introduction of indexation or taper relief then landlords will sell off properties to beat the deadline & there will be no where for their tenants to live.
    New buy to let mortgages have all but disappeared. It would seem bankers still prefer to throw depositors money at hedge funds & derivatives rather than something relatively safe like property !
    For those that say landlords own property that needs to be sold to owner occupiers. There is an answer to this. Most of my tenants are in their 20's & are only in the city (Southampton in my case) for a year or two as they progress through their careers or education. They therefore do not wish to buy. It's therefore vital that rental property continues to remain available to such people.
    People need to stop bashing landlords who provide vital accommodation just as much as hoteliers do.
    As it is landlords don't have the tax free sum when they sell their properties to retire, which is something that hoteliers do have when they sell along with everyone else who has a tax free lump sum when they draw their pensions.

  73. Susan Livingstone
    May 26, 2010

    Thank goodness that someone who understands CGT is actually championing some sense in all this. I was outraged at Will Hutton's description of me- naive because I have invested in property- clearly I should have given my hard earned cash to Equitable Life instead- and the scum of society because I have invested in shares. All I have tried to do is work hard, earn income- on which I have already paid tax- and invest to provide for my family and my old age. Perhaps I should just blow the lot and then go back to the State and say "sorry, there's no money"- now give me some of everyone elses!

  74. Amanda
    May 26, 2010

    Thank you John. It is you are are sticking up for the 'new poor'.

  75. Stephen White
    May 26, 2010

    A proposal for taxation that's very reasonable.
    This is the right sort of encouragement for the right sort of investing.

  76. Alison
    May 26, 2010

    At last a sensible voice of reason in the Government. I am currently selling a buy to let property that I have owned for over 10 years and now live too far away from to manage – I am not going to make a 'gain' as such as I intend to buy another property to let locally.
    This investment is my only pension – I am not a speculator!
    The Government will still receive large amounts of tax through stamp duty on property purchases, however increased CGT would deter property sales and reduce stamp duty revenue.

    May 26, 2010

    40% for btl is a must..They have been responsible for this damaging bubble in house prices and have been pricing out younger buyers due to the tax relief they have been enjoying..BTL paid 40% two years ago so what is their problem?It is my pension!!! That is all i ever hear them bleat but this money is not earned income because all they have done is ride the houseprice wave and waved goodbye to the first time buyers they have priced out of the market….40% is good for me..

    1. Chris J
      May 27, 2010

      Geoff, it is unfair to describe all buy-to-let income as unearned. You should try it one day and then you'd see that it's hard work. How would you like it if someone blindly condemned your occupation? Please only criticise what you understand.

      1. Paul
        May 28, 2010

        Yes, and having a job is hard work but the marginal rate of tax for a lot of people is still 40%+.

        1. Chris J
          May 28, 2010

          Yes and if Income Tax were brought in line with the proposals for CGT, then your wages would be taxed at 40% or 50%, even if you only earned £5000 a year. Perhaps you want to champion that too.

      2. GEOFF KELLY
        May 29, 2010

        how is sitting back and waiting for the market rise hard work. for me btl should be taxed out of existence
        It causes misery for far too many people with rubbish landlords short term contracts and one of the major causes of house prices rises..
        It was the major contributor to pricing out first time buyers because of the way btl could borrow and the tax breaks that came with it.
        I can afford to but ten house but morally would never do it because of the long term damage it has done to society..
        Greedy little people have sat back and applauded while doing not much work as the housing ladder was pulled away from first time buyers is one of the worst things i have seen
        a whole generation has been shafted by their parents or older relatives….shame on you all..you have shafted your children's generation unless prices crash big time…

        1. Chris J
          June 5, 2010

          To moderator:

          How did this invective from Geoff Kelly get through moderation?

          This is pure spiteful prejudice, completely misinformed.

          Reply: I try to delete all unpleasant or over the top allegations about named individuals and institutions for legal reasons and reasons of taste. If you want to send me an email suggesting amendments to Mr Kelly's piece by all means do so. I try to limit the amount I change.

      3. Paul
        June 5, 2010

        Maybe not, but certainly at an individual's marginal rate. Anyway, even that is now not going to happen it would seem, more like some kind of messy compromise. And then you have to ask why savings interest is taxed at a full marginal rate with no allowance for inflation whilst capital gains will probably get some kind of indexation or taper …
        Tax is always unfair and arbitrary. I just don't think you can play the "it's hard work" card when (if you include NI) most people pay rates of tax that are much higher than 18%.

        1. Chris J
          June 5, 2010


          When I make anything, I only make very small money from buy-to-let, and mostly losses recently.

          How do you excuse this then:

          If Income Tax were brought in line with the proposals for CGT, then your wages would be taxed at 40% or 50%, even if you only earned £5000 a year.

          You say the likely compromises are messy, so would you prefer unfair to messy?

      4. Paul
        June 5, 2010

        As I said previously, I would "champion" using your marginal rate. Even then you have some advantages from (a) the likelihood of indexation or taper, which is not available to savers, and (b) a personal allowance of £10k, on top of the personal allowance you will have from earned income and savings interest. If it is to be a flat rate rather than a marginal rate as a compromise, then I think it is very hard to justify – by comparison with wage-earners and savers – anything under 30% as a kind of equivalent average. Based on reports in the media, it is looking possible that there will be a "climbdown" to somewhat less than that.

        1. Chris J
          June 6, 2010


          Indexation was stopped many years ago and was not included in the recent proposals. This means that CGT taxes inflation, which Income Tax does not. Here of course I'm not referring to a gain, but to general inflation, which does not benefit the taxpayer. The personal allowance is also under attack.

          Whether there were a "climbdown" was not the point – the point was the unfairness of the proposal as originally made. For the sake of fairness I hope there is a climbdown from the scattergun approach – viz. hurt the very rich and let everyone else who gets caught be collateral damage.

      5. Paul
        June 8, 2010

        We're not going to agree, I can see. There are going to be a lot of "unfair" tax rises and benefit cuts all round so, except for bankers and the very rich for whom it is worthwhile to employ clever accountants, we're all in it together. The money's got to come from somewhere.

  78. Dan Stork Banks
    May 26, 2010

    I have started a Facebook campaign http://www.facebook.com/?ref=home#!/group.php?gid… called "Tax the rich not the responsible" supporting John Redwood's letter to the Treasury. As with many Facebook campaigns, support it is easy and when many people do it demonstrates the depth of feeling. Although it is not specifically aimed at the right-wing, I do believe it will be of particular interest to concerned Tories who believe that taxing those who made the choice to saved should not be penalized.

  79. Ross S
    May 26, 2010

    Well done John, someone who understands that to raise more taxes via CGT you have to lower the rate !

    History in the UK, Europe & US all show that when the rate is lowered the tax take goes up as assets are more readily traded.

    You need to put a stop to this stupidity from the Liberals who havent got a clue to what makes a entrepeneur motivated to create jobs & wealth.

    I voted Conservative all my life, I donated to the Conservatives, I even helped canvass for our local Conservative MP. However I will NEVER vote Conservative again if they raise this rate.

    CGT should be lowered to 10%

  80. martin sewell
    May 26, 2010

    Before the election David Cameron pledged to look after the people who" did the right thing". Nowhere is this more appropriate than in respect of those who have used taxed income to save/invest thereby helping the country and promoting their own personal independence and responsibility. The opposite – the borrow and spend culture – is what has driven us into serious financial crisis.

    Your well argued letter should be supported by all Conservatives and free market liberals.

    EF Schumacher once famously said that "We must do the right thing because if we do not do the right thing, we shall be doing the wrong thing, and then we shall become part of the problem and not part of the solution". David Cameron needs to be told this loud and clear.

  81. jberesford
    May 26, 2010

    thankyou for your support. I am a BTL investor , I am not wealthy by any means, but in an effort to take responsibility for my own future and pension have invested in property rather than relying on the state to provide a pension.The press keep quoting that CGT was previously 40% but often fail to report the taper relief was available. It seems grossly unfair to apply CGT with no reliefs in a situation where the asset has been held for a number of years and to tax people as though they had made the gain in the year the asset is sold when in reality they will have made the gain over several years.

    Having spoken to other people in the same position I think it is fair to say that there is a general feeling of betrayal. If the goverment do not offer taper relief to mitigate this enormous tax hike, they seriously risk losing the confidence and vote of the millions of buy to let investors who voted for them.

  82. JimF
    May 27, 2010

    The speculative gain is the gain above true inflation, and this should be the centrepiece of any new proposal on CGT. It discourages the Gov from trying to inject inflation into the system to damage savers.

    Secondary to this is the consideration of the societal benefits of entrepreneurial, as opposed to speculative gains.
    Surely we should be recognising the benefits of work-creating enterprise by reducing both Corporation Tax to allow ongoing investment, then low or zero CGT on sale of the enterprise?
    Equally I really cannot see what societal importance can be attached to hanging on to a residential property and enjoying a speculative return, even over a generation. Infact it could be argued that some form of CGT here will have the beneficial effects of
    i) encouraging investment in more enterprising parts of the economy
    ii) curbing property prices for the younger generation
    iii) "handing back" down the generations some of the windfall gains made in property
    No tax is a good tax, but I think treating all long term gains in a similar manner is a mistake.

    Infact the Swiss don't have such a thing as CGT except for churning residential property. And their Corp tax rate is half of ours or less. It seems to work.

  83. Adam Collyer
    May 27, 2010

    Whether we agree or disagree with your comments, John, they are not particularly helpful – predictably, they are being headlined as "Tory Revolt" e.g. in the London Evening Standard and they will destabilise the government and cause problems that our leader, the party and the country can well do without.

    I do think that as a party we need to relearn our once fabled party discipline.

    Reply: They are entirely helpful and the Standard is wrong. I am not rebelling, as there is no government CGT proposal to rebel against.

    1. StevenL
      May 27, 2010

      Exactly, people are fed up of media-worshipping by the politicans. Nothing wrong with a good old debate.

  84. Lou Pole
    May 27, 2010

    And for most people, the capital they have to invest comes from income which has already been taxed.

    I realise that Capital Gains has to be taxed (to avoid income tax avoidance), but it should be means tested, like income tax and based on net Capital Gain after inflation or based on lower rates for longer investments.

    Investment is a key driver of economic growth. Investment is sensitive to international tax competition in the Global Economy.

  85. John Wrexham
    May 27, 2010

    CGT should be reformed to help real entrepreneurs. Buy to let landlords are not entrepreneurs; they are just people who have exploited the national shortage of housing to profit at the expense of young people who are training or studying at university, starting out on their careers or just can't afford to get on the housing ladder because the housing bubble, inflated by easy loans to BTL landlords, has pushed the bottom rung beyond their reach.

    BTL landlords are symptomatic of a country and a society that for the past decade, if not more, has failed to get its economic priorities right – we need to make money trading with the rest of the world and we need to invest more in our business and industrial sector. Just ripping off the next generation is not a long term economic option for UK plc. Maggie wasn't stupid – she knew the benefits to society of encouraging people to own their homes, BTL landlords create the social problems that she was keen to avoid.

    All the moaning and bleating from the backbenches about how BTL landlords should continue to get favourable treatment over people who actually go out and work in the real economy is a triumph of vested interests over the national interest. Your time would be better spent on how to create a proper pensions policy and devising new ways to bring about a savings culture so we can have our own sovereign wealth fund for UK plc. That sounds a lot better than what we have now – a pile of debts and a load of housing spivs crying over their unearned profits – the windfalls of the housing bubble.

    Luckily the wonky ship that would have been the new government has got some stabilisers because the Conservatives and the Lib Dems have to work together. Long may it continue – single party rule is little better than one party rule.

  86. Tim Kelly
    May 27, 2010

    Why should we pay a single penny more in tax? What will we get for it? A few more luxury Range Rovers, BMW's or Lexus cars for the police? A salary increase for a Quango or town hall boss? More zealots from fake charities haranguing us about everything we do? More jobsworths snooping around and fining us?

    There is an endless list of excesses which must be cut before we have to pay a single penny more in tax.

  87. Robert George
    May 27, 2010

    Sound common sense on the whole. I have sent off a letter, altered much in detail but not principles to the gentleman and my shiny new (but perhaps not all that bright MP) looking at it from my own point of view which is as a small to medium business with parts of the business in UK, HK, USA and Oz.

    This sort of approach you suggest would substantially nullify the need or incentive to 're-organise' my business internationally to the detriment of UK tax receipts.

    Good work, it will be interesting to see whether we can get any Treasury response without it being passed through the kalaidoscope of what passes for Limp Dim tax policy.

  88. David
    May 27, 2010

    Thank you for sending this letter which is so right in every aspect.

    In 1997, in his first budget, Gordon Brown changed the rules on pension tax credits and effectively devastated my and everyone elses pension fund. At that point I made the decision to give up on my insurance based pension and invested instead in a holiday home. Wanting to retire in a couple of years and knowing that in some countries, asets held for such a long time are not subject to any capital gains tax, a rate of even 18% seems excessive, but to have to pay at a rate of 40 or even 50% is indeed legalised theft especially as most of the gain is no more than inflation .

    Your campaign therefore is most welcome. I have written to my local MP and I do hope you will carry on this fight until victory is assured.

  89. Roland O'Brien
    May 27, 2010

    Thank you for making the case for those with very modest incomes who are saving, long-term, for their retirement. I'm a self-employed manual worker, trying to build up some savings for when old age forces me to retire.

    I hope you also refute the argument now being put forward (e.g. Will Hutton on Channel 4 News last night) that people like me should all be saving via SIPPs, so CGT is irrelevant to us.

    I'd rather not do this – despite the 20% boost to contributions – because of the lack of freedom to deal with one's savings as one wants, and general distrust of government. I suspect, like me, a lot of people don't take out SIPPs for similar reasons.

    After turning down the offer of tax relief on our contributions, we shouldn't then be hit by penal taxes on any gains. As you suggest, there are plenty of other ways to ensure genuine long-term savers are not caught up in this.

  90. Mark
    May 27, 2010

    Throughout this campaign it has been a pleasure to observe an MP actually doing the job they were elected to do. You were quick to highlight the issue with a separate post as a combined result of responding to comment and doubtless your own initiative. You have promoted sensible debate, and gathered the views of a cross section of the electorate. As a consequence of that and discussion with other MPs, you formulated not merely accurate criticism of the ill-thought out Coalition proposal, but also a well reasoned counter proposal that met the objections and yet supported the key objective with the added merit of simplicity. Finally, you have ensured that a better policy alternative has received good publicity, and consideration by those who will propose the actual measures in due course. I have every trust that you will hone the new measures when they come to the House should that be necessary, and vote accordingly.

    MPs – whether on government or on opposition benches – would do well to emulate your actions. This has been an example of politics restored.

  91. w rusbridge
    May 27, 2010

    Please keep up the good work.
    If I put money in a savings account will lose money because of inflation.
    If I invest on the stockmarket and am fortunate enough to make a capital profit then I'm taxed out of existence. What is the point of saving at all???
    Also why is 'spread betting' tax free? Does the state want to encourage gambling rather than investing?

    1. simon
      May 27, 2010

      Surely there are not enough actual companies out there for everyone who wants to invest to be able to do so .

      So in order to cater for the demand the financial services industry creates synthetic products in what must be a zero-sum game?/trade? with a counterparty to balance any loss/gain . Spread betting is surely no more or less respectable than any other form of synthetic is it ?

      If you are buying share unless it is an I.P.O. it is not a very direct investment anyway .

      Agree with you that there is no incentive to save .
      I’m fortunate enough to make twice the national average and even I’ve come to the conclusion that I’m wasting my time here .

  92. Stephen D
    May 27, 2010

    I wholeheartedly agree with you, John. David Cameron wooed middle class voters at the last election. If you work hard and save, we will stand by you, he said. This is one reason I and many others voted Conservative.

    A lot of people bought and rented out properties over recent years because they had no confidence in private pension provision. Many of them are on modest incomes and took a risk purchasing with mortgages. They intended to sell these houses nearer to retirement in order to have a little more money for their golden years. The alternative was to struggle to survive on a modest private pension.

    If your party raises CGT for second homes to 40% or 50%, this would be a betrayal of many of your core voters. The fact that indexation allowance would not be available would aggravate the injustice. Also, as you demonstrate, the raising of the CGT rate would actually decrease overall tax take, as many second home owners would hold onto their properties, hoping for a future fall in the rate of tax.

    This tax grab would be something Gordon Brown would have been proud of. If the Conservatives proceed with it, then they will lose a lot of support from people who "have done the right thing".

    Also, private rentals address the huge shortage of accommodation in the UK. How many additional houses can this country afford to build? Clearly not enough to satisfy the growing demand. Do your colleagues really want to kill off the buy to let market?

  93. Julien Foster
    May 27, 2010

    I agree entirely with this approach based on principle, good sense and fairness.

    My concern is the approach being taken by the media, many of whose organs are portraying this as a rebellion on the back benches and an early challenge to the leadership.

    David Cameron, George Osborne and David Laws – all of whom have the right instincts – have also to contend with the inevitable catcalls from Labour that lowering CGT is doing a kind of inverse Robin Hood…and that they are in some way bowing to the so-called Right because they cannot control their own MPs. To bow instead in the other direction is to take more account of the message the policy sends than its results – its results being measured in terms of the revenue raised and, by definition, the businesses flourishing. (And if one is to take account of the message, what about the message sent to businesses at home and abroad if CGT is raised…?)

    I want the mainstream message to be instead the moral case for lower taxation.

  94. Alan
    May 27, 2010

    John – As a loyal Conservative voter for my entire life, I feel totally conned by this CGT move. Please talk some sense into your colleagues!

  95. N.J.L Watkins
    May 27, 2010

    Thank you for your letter.

    My elderly parents have held a portfolio of shares for many years, in fact much of their holding goes back for thirty to forty years which has allowed them to live quietly, paying their way and now paying their home care costs themselves.

    Consequently after a lifetime of never being a drain on the state we all realise that if they are now going to be clobbered by CGT they should have got rid years ago like so many who have enjoyed the luxuries of life. A sad reward at the end of your life.

    I voted Conservative for the first time in my life. I am beginning to question why but I am greatly heartened by your campaign.

  96. Trevor
    May 27, 2010

    If I buy and sel computer chips or antiques the profit is taxed as income. If I buy and sell houses or shares the profit is taxed as capital gains. Where it the incentive for real entrepreneurship in that? w rusbridge could be investing in companies before they hit the stock market. David, inflation is taken out of CGT calculations and Roland, if you choose to avoid a tax-effective solution tehn I can really see no reason to complain.
    Finally, your taper relief is far too sharp – investment for ten to twenty years is more appropriate – especially for pension funds.

    1. w rusbridge
      May 27, 2010

      The money I have invested comes from income that has already been taxed once. Why should I have to pay tax on it again? Perhaps I should blow the lot and then fall back on the state!

      1. Trevor
        May 28, 2010

        You are not being taxed on it again. You are only being taxed on the investment income you get from using it.

      2. Paul
        May 28, 2010

        Ditto for interest on savings. Why the difference?

  97. Mrs Raye Blake
    May 27, 2010

    Please put pressure on the new coilition to be fair and reasonable regarding CGT. My husband and I are now in our 60’s. We were made redundant 10 years ago. We sold our home and invested everything we owned and took out a sizeable business loan to allow us to buy a convenience store and be self employed. We now need to retire on the grounds of failing health and the sale of our asset will fund our retirement. A high rate of tax on the gain now would cripple us financially and would be grossly unfair. We have always worked, we’ve paid taxes all our working lives, surely we should expect a fair return for all the years of effort and investment. We watch and wait with trepidation.

  98. Death by Donut
    May 27, 2010

    Speculating on BTL property using cheap debt is not 'saving' for your retirement it is property speculation. It is this whole idea that has led the country to where we are today , broke , overloaded with debt and wealth transfered to the better off.

    It's time to move the wealth in the other direction , back towards the younger generation and enable them to get on the property market.

    The 3rd way politics of 'affordable' housing via cheap debt has failed , lets get back to 'cheaper' housing.


    1. Chris J
      May 29, 2010

      So you think investing in a pension plan is not speculating then ?
      Why is investing in shares less deserving of punishment than investing in property?

      This is simply thoughtless condemnation of others.

  99. steve
    May 27, 2010

    The idea that BTL caused the housing price bubble is nonesense. My home town has a very high proportion of privately rented dwellings, but prices are no higher than in neighbouring towns with a low proportion.

    BTL usually provides short term accommodation for people not wishing to buy, such as the huge number of european workers that have increased the population of the UK. Would house prices have fallen if theyhad all bought their housing?

    The landlords societies recently reported a survey which found that tenants were more satisfied with privately rented housing than public. As several contributors have said, BTL involves a lot of work and expense and the result is that the housing stock is improved.

    Cameron, from a city stockbroking background, cannot understand that owners do not always buy and sit back to watch the money come in or that house improvement is an economic gain. Please explain the reality to him.

  100. Phil Thomas
    May 27, 2010


    This is one of the reasons we re-elect you. Doing such a stirling job for us. My dad can't understand why as a welshman I vote for you but as I explained to him, the conservatives have a sensible set of policies but its the man who I want to represent us in the HoC that I am really voting for.

    Out on a limb here, Any chance in the future you could propose a flat 30% tax band for everything (hence no tax dodges available) and abolish NI. It would make life an awful lot easier from a financial planning viewpoint. Although far too radical and would require less civil servants in tax offices I fear.

    Keep up the good work.

    Reply: I do support flatter and lower Income Tax, but that is for another day.

  101. Andy
    May 27, 2010

    I moved house in 2008 just before the market fell apart. I couldn't sell because there were no mortgages available. It is up for sale now but under this proposal I will pay 40% CGT on an asset bought 24 years ago.

    In the meantime I became redundant and put my pay-off in shares because of unstable banks and nil deposit rates; it looks like I'll be paying more CGT for my trouble, including the portion eroded by forthcoming rampant inflation.

    There is clearly no incentive to save as the nest-egg is subject to CGT, IHT, IT. I am better advised to spend the lot then sit in the benefit office claiming state handouts in my dotage. Some of my circle of friends and acquaintances have done precisely that and view my thrift as Quixotic.

    I thought, to my chagrin, that Tories would have the wit to support people willing to get off their backsides and plan their savings and pension prospects. Maybe that is still their philosophy but the Libs weird antipathy to anybody attempting to stand on their own two feet are holding the whip hand. Only to be expected from the party who's platform is constructed from the PC rantings of left-wing woolly-headed teachers, constantly claiming that they're hard done by in only having a quarter of a year off with a handsome salary to boot.

    It seems that Labour were correct in their assertion that the Libs/Tories are economically inept. From announcements made so far I see a further slide back into recession on the cards.

    As Mssrs. Daltrey, Townsend, Entwhistle and Moon opined thirty-odd years ago; "Won't get fooled again".

  102. Chris J
    May 27, 2010

    We are seeing some fairly vindictive comments from individuals who, by their own admission, have not experienced the challenges of investing in property as an occupation. The common theme in these comments seems to be satisfaction in the potential misfortune of others, with the perception that the "others" are all tremendously wealthy at the expense of the individual making the criticism. To those commentators I say please try to be more objective. Think how you would feel of the tax on your pension were doubled. Look at John Redwood's letter for an example of a constructive argument.

    Thank you John Redwood for your incisive contribution. I fervently hope that your comments have an impact.

  103. Richard
    May 27, 2010

    What a superb letter with clearly thought out arguements. Capital Gains Tax can only be fair if either your suggestion of reduced rates with each year the asset is held or index linking or both is applied. If the current suggestions are implemented they will result in reduced investment, retention of assets to avoid tax and, as you so clearly show, reduced revenue. They will also encourage people to spend their assets rather than save and later become a drain on the state.

  104. Gill Govier
    May 27, 2010

    I have voted conservative all my life with the belief that their policies do not hit the mid earners and they have sensible tax policies. I appreciate that David Cameron is in a coalition with the Lib Dems but he really does need to seriously consider the effect this huge increase on tax will have on mid earners. I have not followed the trend of upsizing all the time but have chosen to remain in a small house and purchase another property for holidays, now when I sell it I will be taxed at 40% and in addition I understand the tax relief is going to be reduced from 10k to 2.5k that really is outrageous.

    It looks to me like John Redwood letter to the treasury is returning the Conservatives to sensible tax policies. Lets hope it has the desired effect.

  105. jules
    May 27, 2010

    Finally! A Conservative that I'm happy to support.

    Keep up the campaign and let's hope sense prevails.

  106. Mark
    May 27, 2010

    You need to debunk Cable's comment that Labour abandoned taper relief "because it didn't work". Darling cancelled taper relief and dropped that rate of CGT in order to try to encourage crystallisation of gains through a LOWER rate, and to encourage short termism and favour for his friends in need at banks. Frankly, I'm amazed how economically illiterate Cable appears to be.

  107. David Walker
    May 27, 2010

    Dear John

    I agree with your proposals entirely. It is well balanced and properly though through to acheive the correct outcome for tax revenue and savers/ investors.

    Thank you for championing this.

    Best regards


  108. S W Freeman
    May 27, 2010

    Fully support your stance.

  109. j reid
    May 27, 2010

    We own a second property and this is because we became aware that our pensions were inadequate. Now we find that all our hard work to decorate the property and make it habitable and thereby safeguard our future will be of no consequence if the plans of the current coalition government go through.

  110. David
    May 27, 2010

    Dear John,
    You make a forceful case, as usual. Unless the CG tax proposals take into account the impact on careful and prudent savers it will come very hard on the elderly when they need to realise assets on which to live. Many will feel that they have been sold short by the Conservatives comparing them with Gordon Brown when he raided the pension funds. The effect of penal taxes on the old will only make them rely on the State for long-term care – at added cost to the State.

    Like many others we worked all our lives, spent prudently, chose not to live extravagantly beyond our means and saved for a comfortable but not luxurious retirement. I worked until I was 72 so that I wouldn't have to draw on my savings too soon nor have to rely on family or State in my later years. I made an investment some years ago with the intention of realising it when I was in my 80's. Now the time has nearly come when I need the funds the CGT proposals will throw my plans into disarray and unless allowance is made which acknowledges our foresight I'll be significantly poorer, I will even say, robbed.

    Many amongst the younger generations may envy what they perceive to be a luxurious existence of life-time Saga cruises but that's not reality. It isn't like that for many. I tell them now: getting old isn't funny neither is it particularly comfortable, as many will discover. Of course I know that the country has huge debts and we have all, wittingly or unwittingly, obtained some benefits from the imprudent excesses of the last government, so none can escape scot free, but I would ask that our 'prudence' (if GB hasn't made that a dirty word!) be recognised. Please don't rob us of a large part of our savings and our security.

    John, go and bend a few ears!

  111. John Whitehead
    May 27, 2010

    Dear Mr Redwood,

    Whilst generally supportive of your position may I add an additional idea.

    For people who just pay income tax at standard rate (eg. not so wealthy pensioners) who then make a one-time capital gain (eg. sell a second home or buy-to-let). The CGT should not be top-sliced and charged at say 40%. With the top-slicing method, a gain made over many years is being all being taxed in the one year of realisation at an excesive rate. Rather, I think the CGT rate should be the same as the marginal rate of tax being suffered on regular (annual) income. So if the person, ignoring the capital gain, is paying tax at 20% then the CGT should likewise be charged at 20% even if the gain amounts to tens of thousands. Personally I think that is a fairer way of assessing tax on capital gains that are only occasionally made.

  112. Andy Bugden
    May 27, 2010

    I fail to see your argument. Statistics can show a multiple of views. Ideally I would like to see taxation kept low, I would also like to see VAT increased to 20% with an agreement from the EU that VAT is the same across the Union. Then we could charge VAT from source to our EU neighbours.

    I view that capital gains should be treated the same as any other income but it should be linked to inflation. Yes people are investing, but don't we all invest in our futures with our education and job training. It might take someone 20 years of hard work to reach the top of his profession, but someone might achieve similar gains in only 5 years investing not hard work, but money.

    I would actually like a system that says if i earn 10 times as much as you, I pay tax 10 times as much as you – maybe you can point this out to your new liberal friends – they like things proportional!!!!!!

    Lastly, can we refer to the tax we pay when we dies as a death tax. It is that in all forms in the UK. In France they have inheritance tax – that is you are taxed on what you inherit and you are allowed to make certain gifts every few years tax free to your inheritors. I forget the precise figures, but if you are a spouse you get it pretty much tax free, if you are a son or daughter you get 150k tax free, a grand child or similar in line can get 15k tax free. This is inheritance tax.

  113. Rollo Clifford
    May 27, 2010

    Well, that had legs! Well done

  114. Michael Philip
    May 28, 2010

    Whatever CGT rate is decided on, the Government should finally bring in a simple and fair system for calculating the amount due. Why not as follows?
    If you sell an asset in the first five years after you acquire it, then CGT is charged on the full amount of the taxable gain. If you keep the asset for longer than five years,then for each additional year you get an allowance of 10% of the net gain. So, after a total of ten years this deduction is fifty percent (5 x 10%). If you keep the asset for fifteen years, the allowed deduction is 100% (10 x 10%), so no CGT is due.
    This seems to work well in France. Those of us who have invested in assets such as property, building a retirement fund, should not be penalised. The Government should support retired people. A Lib Dem tax, perhaps, but with a Conservative disposition!

  115. Mulligan
    May 28, 2010

    I am a firm supporter of your views and thank-you for the campaign. From the BBC News website, "he (Vince Cable) also dismissed Tory MP John Redwood's proposal to make the tax much lower if an asset has been held for a long time, saying that would be a return to a system that had to be abandoned by the previous Labour government because it didn't work." Looks like the Liberals have swung this coalition to the far left.

  116. Steve
    May 28, 2010

    Well done John, someone who understands that to raise more taxes via CGT you have to lower the rate !

    History in the UK, Europe & US all show that when the rate is lowered the tax take goes up as assets are more readily traded.

    You need to put a stop to this stupidity from the Liberals who havent got a clue to what makes a entrepeneur motivated to create jobs & wealth.

    I voted Conservative all my life, I donated to the Conservatives, I even helped canvass for our local Conservative MP. However I will NEVER vote Conservative again if they raise this rate.

    CGT should be lowered to 10%

  117. Chris J
    May 28, 2010

    If one is renovating and letting property to earn a living, then it's reasonable to suggest that it be taxed more like income from ordinary employment.

    However, it has been suggested by the coalition that the CGT rate might go to 50% and the threshold drop to £2500. In that case, if I make a gain of £6000 on a property I will pay capital gains tax of £1750. If I had received the same income as wages I would have paid no tax at all. That is not fair. John Redwood succinctly iluustrates why it is also not prudent.

    When the Labour Government reduced the headline rate from 40% to 18%, they also removed taper relief. Now the proposal is to return the date to 40% or even 50%, without the taper relief and also with a greatly reduced threshold. That makes a substantial difference. The fact is that most people don't like arithmetic and tend to ignore figures that don't fit their argument, especially when they see it as someone else's problem. The worst crime at the moment is to be a banker and the second worst is to try to be rewarded for taking a risk with one's hard earned money. David Cameron doesn't want to punish enterprise but he has to work with people who apparently do.

    I notice that the more aggressive assertions in support of the draconian proposals are coming from people who are not buy to let investors, without having seen the work involved in providing others with a good home.

  118. Pam
    May 28, 2010

    Mr Redwood,

    You are to be congratulated on your articulate letter and sound CGT propsals. Your solution offers a way out of the Cable/ Clegg bind.

    Thank you for championing those of us who are aspirational, prudent and thrifty. How can fairness be acheived without indexation and taper relief ? It cannot.

    I would like to see a Conservative goverment returened at the next elecetion. Should Mr Cameron side with Cable rather than your sound proposals (and I suspect Mr Osborne's natural leanings) this will never happen in my life time. Friends and family are set to desert the Conservatives in droves if those 'who did the right thing' all their lives in terms of self provision are penalised.

    If Mr Cable had a good and able mind he would find a way to strike those (bankers) who subvert income by taking their bonus a shares rather than using a blunderbuss approach and killing innocent onlookers in his spiteful cull.

    For those who see punative CGT as a way to reduce house prices they do not understand the complexity of this market and the underpinning of our financial instutions and pension funds (of the many) by asset values. They should beware of what they wish for.

  119. John Moss
    May 28, 2010

    If you abolished CGT as a separate tax regime and simply carried capital gains across to income, relieved by 20%per annum after 1 year, to be taxed at the individual or business's income or corporation tax rate, this would achieve your aim. The annual CGT free allowance could go to pay for a rise in personal allowances. Businesses don't have any free pay!

    Applying CGT to homes could then be justified on the basis that most people move every 7 years on average, so would not pay anything, only the speculator would be affected.

    1. John Moss
      May 28, 2010

      I meant to add that this would achieve a "Lawson" rule – abolishing a whole tax!

  120. David Anderson
    May 29, 2010

    I can see the need to find a way to prevent money being diverted from income to capital gains as a tax avoidance measure. However, many people have used buy to let property and share investment as a long term means to save for their retirement because the return on pensions has declined, there are far fewer final salary schemes and pension savers have little trust in financial institutions to provide them with a decent pension in 20 or 30 years time. I do not see why these people who typically keep these assets over many years and who have probably paid for the intitial investment in those assets out of already taxed income should be penalised and even worse pay tax on the whole gain which includes many years of inflation. It would be even more of a kick in the teeth if this were to happen and at the same time so called "entrepreneurs" in private equity firms who use other peoples money to buy a business, increase its value, then sell it and have the gain taxed at 18% were allowed to continue to do so. I think this is a huge test for David Cameron and if it he gets it wrong it will be as disastrous for the Conservatives as it was for Labour when they introduced the "10p starting rate" for income tax which had the consequence of making those on lower incomes worse off. Tapering the relief would be the right idea as it still provides an incentive to save or to start their own business and would give stability as people would be more likely to keep those assets for longer and I am sure private equity firms can afford to tie up their money for at least 5 years in a business to avoid a big tax bill.

  121. David Tuck
    May 29, 2010


    I think your suggestions make sense. Well done for being constructive. As a long term admirer, I hope it's not long before you are back on the front bench.


  122. David B
    June 1, 2010

    I am fully behind you on the main thrust of your CGT proposal. Many economic text books start with the assumption that tax does not influence behaviour and many people who read these text books believe it, hence the assumption that if you raise tax rates your raise tax revenue. In the real world this is not true and tax has an influence on behaviour and often in irrational ways.

    Tax revenue actually follows an inverted U shape, with tax revenues rising as rates rise until a tipping point is reached. Once the tipping point is reached revenue starts to fall as rates rise. This happens because tax payers do a number of things, especially in relation to CGT:

    1. Defer decisions that will generate tax revenue, in the case of CGT that means not selling assets
    2. Take advise that will reduce their exposure to the tax
    3. Undertake activities with less risk and therefore less return
    4. Leave the country so that when the gain is realised it is not subject to GCT in the country, in this case the UK

    I have a number of points that I would like to raise with your proposal which I think would not only benefit the economy would also secure an increased flow of revenue into HMRC in these difficult times:

    1. I feel the time frame of 5 years is too short. I feel that long term investment should be set at 10 years, with an immediate reduction in the lowest rate at the age of 65
    2. Short term investment should be longer than 1 year, and should probably be set at 3 years.
    3. The lower rate of CGT should not be 0% but should be no higher than 5% – Once the decision has been taken to tax, having a 0% rate of tax can also drive irrational decisions in the same way as to high a rate.
    4. Assets subject to IHT should be exempted from CGT for a period of at least 10 years or only subject to CGT at the lowest rate

  123. […] revealing.  For much of it, Cameron was quizzed about the objections that David Davis and John Redwood have raised to the planned hike in capital gains tax.  And, for his part, the PM didn’t […]

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