Capital Gains Tax is very complex

 

There are now two rates of CGT, 18% and 28%.

There are various exemptions. Cars, corporate bonds,  and  currency for personal use are exempt. So too are all sorts of ways of lending to the government. Gilts are CGT exempt, as are some National Savings. ISA savings schemes also escape. It shows that the government  is not against capital gains per se, but wishes to channel investment into preferred areas, especially into loans to the state. Entrepreneurship is less valued than lending to the government, but can attract a preferential rate of 10%.

There are some strange rules. You can carry forward losses, but you have to offset losses against gains in any given year even where you have not used up  your tax free allowance on the gains. On death losses can be carried back 3 years to get a rebate for the estate.

CGT is the most voluntary of taxes. People can and do delay taking profits if they think the rate is too high. They can buy assets which are exempt, as there is plenty of variety, and there are tax free wrappers. CGT in a way began as a Treasury device to stop people owning bonds and selling them just before they paid the interest to capture the income as a tax free capital gain. They stopped that sometime ago by making people buy gilts with adjustment of accrued income, so people do have to pay income tax. Yet the tax remains.

Should gains be taxed? Should gains on so many things be exempt?  What rate is likely to maximise the tax take if you wish to keep a CGT?  In the US and the UK over the last thirty years rates under 20% have collected more tax than higher rates. Could it be that we are well above the best rate to optimise the take? Is the 28% rate the reason the Treasury is forecasting lower receipts this year?

 

(This site does not offer tax advice and I am not a qualified tax adviser).

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114 Comments

  1. lifelogic
    Posted September 10, 2012 at 5:40 am | Permalink

    Capital gains tax is now levied on gains that have not even been made, after inflation (for individuals) and at up to 28%. So you need to buy an asset that is going up at perhaps 8% PA just to keep your money worth the same (after the tax grab and inflation). Even then they will grab another 40% of your assets should you carelessly (or otherwise) die.

    As you say, one also often ends up with assets you cannot sell without a huge tax bill, again harming the economy by making you retain assets rather than trade them for other perhaps more suitable and productive ones.

    The rates needed are, in my opinion, 20% for CGT after inflation allowance. Income tax too at 20% top rate and VAT at 20% and NI (employee and employer at 20% combined) this is surely more than enough to finance the few real service the government provided so poorly.
    At these rates gains and income are taxed roughly at similar rates so it is fairly fiscally neutral between the two. I suspect you would get more tax revenue long term anyway with these flat rates. As the money would not all run away from the UK (as it does now other than for rich Non Doms where the UK is great place to be).

    There are good CGT tax breaks using the Enterprise Investment Scheme and others worth looking at but again rather over complex and risky for most. The government should only be spending about £5000 per head for the poor services they provide anyway. Even that looks expensive given the quality of services provided.

    • Leslie Singleton
      Posted September 10, 2012 at 6:57 am | Permalink

      Trying to simplify and reduce is all very well but frankly hopeless till we move the State back much closer to its original and still prime roles of internal and external security, to wit the Police and Defence. Not much chance of that happening any time soon of course but one expects the Conservatives at least to pretend.

      • lifelogic
        Posted September 10, 2012 at 9:17 am | Permalink

        Indeed they have even given up on pretending to cut the state down to size.

      • Bazman
        Posted September 10, 2012 at 6:06 pm | Permalink

        You are going to need a big police state and army to enforce that without giving employment and minimum living standards to the population. You seriously think that in rolling bank the state to provide only these two services is going to filled the the private sector in terms of jobs and services. Or do think that huge swathes of the population are just going to take it lying down and have nothing and be happy with it. Interesting to see how long you would last in your own fantasy Leslie? Lifelogioc and many like him would not last five minutes and would be the first ones down.
        The middle class social security system can only cope with so many and when helped by the state and in many cases is the state. What would the chaps and gels do on Monday? Ram it.

        • libertarian
          Posted September 10, 2012 at 8:19 pm | Permalink

          Dear Baza oh the irony of accusing someone of living in a fantasy. The trouble with you socialists is you lack the basic understanding of anything to do with money. By scrapping large amounts of tax and the state apparatus which wastes it you will create far more and better paid jobs than ever before. Why? Simple, money has no use unless you spend it. At the moment people DO NOT spend it as its taken forcibly by the government and then wasted. With only basic taxes it means ordinary people have FAR MORE MONEY in their pockets, they will spend it creating far more opportunities

          • Bazman
            Posted September 11, 2012 at 5:32 pm | Permalink

            You both seriously think the state is able to fill the gap? Like I said, fantasy in a modern society.

        • Electro-Kevin
          Posted September 10, 2012 at 8:29 pm | Permalink

          Bazman – I think that is what the politicians fear and why we are not getting the cuts (and I say so with regret and trepidation for my own job) that we need.

          If so then I share the same fears. Because the money has run out.

          You write as though there is a choice.

    • Disaffected
      Posted September 10, 2012 at 8:30 am | Permalink

      How about the slice they take from dividends even if shares are held in an ISA tax wrapper? Government has and will think of many inventive slight of hand ways to tax people hoping not to draw too much attention.

      Maggie started the stealth tax game in a crude attempt to deflect people’s attention that income tax was not being hit. NI is another government scam. Labour went to great lengths to deceive/mislead people that the increase was necessary to fund the NHS- no such thing it was a straight forward tax. It was reported they even employed consultants to make sure the correct wording was used to achieve their aim.

      A dose of integrity in politics would not go amiss.

      • Mark W
        Posted September 10, 2012 at 11:39 am | Permalink

        Taxing share dividends happens in pensions as well thanks to G Brown. Oddly enough I didn’t recall the Unite Union up in arms about this even though they “claim” they want everyone to get good pensions.

        • lifelogic
          Posted September 10, 2012 at 9:45 pm | Permalink

          Indeed the state sector already had hugely better pensions so what did G Brown do he mugged the private ones even further.

      • nicol sinclair
        Posted September 10, 2012 at 12:36 pm | Permalink

        @ Disaffected – me too! If one waits for “A dose of integrity in politics”. Wait on – like waiting for Godot…

      • Bob
        Posted September 10, 2012 at 4:50 pm | Permalink

        @Disaffected
        “How about the slice they take from dividends even if shares are held in an ISA tax wrapper?”

        It makes share ISAs a bit pointless for most people, as they have a capital gains allowance currently £10,600 p.a. anyway, and capital gains are few and far between nowadays.

  2. norman
    Posted September 10, 2012 at 5:52 am | Permalink

    Are collection rates lower because we are in a recession or are we unable to get out of recession because taxes are too high.

    Choose your side, left or right. This government undoubtedly would choose left, income from taxes are down because we can’t get out of recession (caused by too much rain, sun, t00 much public holidays, olympics, what’s going on in a handful of other countries that seems to affect us but not other similarly placed countries – take your pick, we’ve been given plenty of excuses to choose from. Inept Chancellor would be my choice, not on the list though).

    Most of the readers of this side would probably take the right wing view that taxes that are too high stifles growth.

    Problem is the beast has to be fed and no on in government has the courage to face him down.

    Carry on spending.

    • Mark W
      Posted September 10, 2012 at 11:41 am | Permalink

      Here here

    • Bob
      Posted September 10, 2012 at 12:33 pm | Permalink

      “…Problem is the beast has to be fed…”

      The problem is overfeeding with inadequate exercise!

      • Bazman
        Posted September 10, 2012 at 7:20 pm | Permalink

        Maybe you and the fantasists could name a country with a successful economy in which the government does not play a vital role in driving forward market economics and standing up for the public interest? Are we to rely on the ‘market’ completely for this? Not Real. Ram it.

        • lifelogic
          Posted September 11, 2012 at 5:08 am | Permalink

          No one suggest the state has no role at all, it clearly has some role to play. Just that its main role should be to get out of the way most of the time and tax as little as is needed to provide basic services.

          • Bazman
            Posted September 11, 2012 at 6:33 am | Permalink

            You need to come up with some examples of the jobs created due to the cut in the top tax rate?

    • uanime5
      Posted September 10, 2012 at 8:45 pm | Permalink

      This level of taxation didn’t hinder growth when Labour was in power.

      • Disaffected
        Posted September 11, 2012 at 8:35 am | Permalink

        Absolute drivel.

      • Lindsay McDougall
        Posted September 11, 2012 at 9:25 am | Permalink

        The growth under Labour was based on debt, nothing else.

      • Bob
        Posted September 11, 2012 at 12:11 pm | Permalink

        @uanime5
        Labour’s “growth” ?

  3. Mike Stallard
    Posted September 10, 2012 at 6:21 am | Permalink

    Any schoolteacher knows that if you make a set of very complex rules up they will never be effective.

    Keep it simple stupid must be the rule. No Smoking. Shut up. Well done. 18/20.

    “Anyone who was here on Thursday need not bother to turn up unless they were also here on Tuesday. This does not apply to those with initial letters M to P…..” Chaos!

    So Mr Brown was totally wrong with all his thousands of pages of tax regulation. Now his rules have been accepted and you get a lot of people (especially lawyers and accountants) taking the money that ought to go to the Treasury. Why aren’t the present lot cutting swathes through the jungle of taxes? You cannot even blame the EU.

    • Robert K
      Posted September 10, 2012 at 8:33 am | Permalink

      Good point about not blaming the EU. Much as I wish to exit the EU, we need to get our own act together in terms of a simplified and smaller state

      • nicol sinclair
        Posted September 10, 2012 at 12:38 pm | Permalink

        As I have said before – a flat rate tax will do the trick & everyone will pay if it is set low enough.

        • Bazman
          Posted September 10, 2012 at 6:08 pm | Permalink

          As has been pointed out to you before. Good if you are rich or poor. Not so good if you are in the middle and that still leaves the question of enough revenue being raised.

          • lifelogic
            Posted September 11, 2012 at 5:09 am | Permalink

            The need to stop waste then they would not need as much revenue to chuck away anyway.

      • Winston Smith
        Posted September 10, 2012 at 3:53 pm | Permalink

        Unfortunately, EU regulations and the UK tax system are inextricably linked. The VAT directives for example.

        • lifelogic
          Posted September 10, 2012 at 9:48 pm | Permalink

          Indeed we cannot even have low VAT on insulation I hear due to the EU what is the point of having a Chancellor who cannot even do that?

    • Disaffected
      Posted September 10, 2012 at 8:40 am | Permalink

      A lot of growth or stimulus ideas cannot be implemented by government because of EU competition rules. Out of the EU would save the UK a fortune.

      Another quango came into effect this week OFFa led by PRof Ebdon. The dumbing down of university education begins under the agenda of social engineering. One former administrator at Cambridge called it a cruel experiment. I thought Mr Milburn (former Labour minister) was the social engineering guru for the Tory led coalition government and now we have another one paid for by the taxpayer. Mr Cameron was going to have a bonfire of quangos……….

      Another expense that will cost us even more tax while universities will end up like state schools- billions of taxpayers’ money spent and education becoming worse than third world countries. It is in the gift of Mr Cameron to stop this of course, but do not hold your breath……

      • Mark
        Posted September 10, 2012 at 10:49 am | Permalink

        I thought Mr Willetts is Universities minister – strangely, despite the LMU fiasco, he continues in that role, dumbing down our universities while Mr Gove tries to improve standards in schools. The left hand doesn’t know what the right hand is doing, it seems.

        • Sebastian Weetabix
          Posted September 10, 2012 at 11:22 am | Permalink

          And they call him 2 brains. The mind boggles.

          • Sebastian Weetabix
            Posted September 10, 2012 at 11:23 am | Permalink

            I suppose he’s not as bonkers as Oliver Leftwing – frightfully clever fellow, who dumps official papers into bins and invites burglars into his house.

          • Atlas
            Posted September 10, 2012 at 2:19 pm | Permalink

            Err, what size were these brains?

            To be more serious (pompous?): Events and experience seem to show that clever people are rarely clever in all the departments required for life – so I’ve no doubt at all that Mr Willetts excels in some areas of life, but perhaps not every one.

        • Disaffected
          Posted September 10, 2012 at 4:09 pm | Permalink

          Willetts is content to give free university education to our EU competitors while Ming Campbell bestows degrees freely, as chancellor at St Andrews, to EU students while doing the same for English students who have compiled a lifetime of debt- and this is our country!! This is from a former Lib Dem leader and a party who was going to abolish university tuition fees and resist any attempt to increase them. Wipe Lib Dems off the political map. Sordid party with sordid MPs.

        • uanime5
          Posted September 10, 2012 at 8:48 pm | Permalink

          How exactly is Gove improving standards by removing guidance for teachers and encouraging people with no experience in teaching to become teachers?

      • nicol sinclair
        Posted September 10, 2012 at 12:39 pm | Permalink

        Bonfire of quangos? More like a damp squib.

      • Martyn
        Posted September 10, 2012 at 3:01 pm | Permalink

        @Disaffected – ‘A lot of growth or stimulus ideas cannot be implemented by government because of EU competition rules’. Indeed, the 29,399 pieces of EU valid law, the 52,132 harmonised EU standards and 4,733 EU international agreements, let alone the 11,961 verdicts from the EU Court in Luxembourg that now ensnare the UK cannot be set aside or even amended other than by the EU commission – both the UK and the EU Parliaments are utterly powerless to do so. It would be a mammoth task to even start extracting the UK from the dead hand of the EU and I am quite sure no government of ours has the slightest interest in taking on.

        No matter how convoluted or poorly written the continuous stream of legislation stemming from the EU and our own government and no matter how bad an effect it has on our lives and the economy, there is zero incentive for either our government or the EU to consider reducing the burden of legislation it imposes on us – after all, power and control of the voter by the EU, government and the civil service is what underpins these activities and the drive towards the federal USofE. Someone has to pay for it all, so of course taxes have to go up and if possible in such a way that the voting geese do not realise how badly they are being plucked.

    • Jose
      Posted September 10, 2012 at 8:51 am | Permalink

      Absolutely spot on, the only thing you missed out on was ‘vested interests’. The civil service and politicians are there to minimise any changes not to maximise the use of our taxes. All they ever do is tinker when in reality they need to take the axe to the civil service and local authorities headcounts.

    • Mark W
      Posted September 10, 2012 at 11:45 am | Permalink

      I genuinely wonder how true “In the Thick of it” actually is. In business most of these ministers would be bankrupt, but as their income comes through taxation they never have to worry.

      If I live long enough to see a balanced budget, I truly hope that legislation prevents borrowing again. (Possibly a situation like 1940 would justify it temporarily). Government should be honest and only spend what they tax.

      • REPay
        Posted September 10, 2012 at 5:31 pm | Permalink

        Even if you are not young you may see a balanced budget, but it will because we have gone bust. Unfortunately we few here are having a debate that is not happening in the western world because it is inconvenient.

  4. John Moss
    Posted September 10, 2012 at 6:23 am | Permalink

    John,

    I think you would agree that encouraging long-term equity investment rather than short-term debt is a good thing. Reforming CGT could help with this.

    I would scrap it as a separate tax and instead carry any gain across to income, personal or corporate, with the only “relief” being any additional “investment” made in improving the asset. Then, tax it at the appropriate rate for that individual or business.

    However, to encourage long-term investment, relieve the gain at 20% per annum after two years. The effect would be to reduce the gain carried across to zero after seven years. This would encourage long-term investment in income producing assets and/or exempt long-held family property and goods entirely.

    And to be clear, I would apply end the exemption for principle private residences, but as few people move within seven years, that would make little difference to most people.

    • Denis Cooper
      Posted September 10, 2012 at 10:36 am | Permalink

      Long-term equity investment is not necessarily a good thing which should always be encouraged when the shares have been purchased by small investors who aren’t going to play any significant role in the management of the company.

      I remember Gordon Brown putting forward this argument back around 1997, and I remember thinking then that a company only gets fresh capital for investment in its business when it sells new shares to investors, and thereafter it makes no difference to the capital available to the company whether the shares stay with the original purchasers or are sold on and then repeatedly traded on the market.

      If I buy shares in a company on the secondary market then that adds nothing to the capital available to the company, and if I then sell them on the secondary market that takes nothing away from the capital available to the company.

      Those are just changes in ownership of the shares from one investor to another; the capital available to the company for productive investment is only affected if I buy the shares from the company when they are first offered, and is not affected at all whether I then sell my shares on the next day or I hold them for the next forty years, so why should the government deliberately arrange the tax system to try to make me keep them longer than I might otherwise want to do?

      If anything, Gordon Brown’s misguided idea of using the tax system to manipulate small personal investors into becoming long term holders of existing shares could become counter-productive for the economy, because if it had any effect it would reduce the liquidity in the secondary market, so making shares a less attractive investment, and so making it more difficult for companies to raise fresh capital by selling new shares.

      • Mark
        Posted September 10, 2012 at 3:25 pm | Permalink

        Shares selling at depressed prices prevents further significant capital raising via rights issues. Shares also carry voting rights. The problem we have is that shares held by proxy via institutions are not voted in the interests of their beneficial owners, but in the interests of the institutions.

        • Denis Cooper
          Posted September 10, 2012 at 5:54 pm | Permalink

          So what are you saying, that the tax system should be designed to deter people from selling shares at depressed prices?

    • Mark
      Posted September 10, 2012 at 10:54 am | Permalink

      The germs of a good idea. I think those who move more frequently should not have a tax on moving, so long as it is their home: they will have costs enough with SDLT, estate agent fees, conveyancing and other moving costs. Speculating in property is on the other hand worth discouraging, because property bubbles are very damaging economically, as present circumstances show.

  5. JimF
    Posted September 10, 2012 at 6:58 am | Permalink

    The main inequity with CGT was brought about by loss of the link with inflation. This is, in itself, essentially a wealth tax as it removes a chunk of whatever one’s wealth can buy as the years go by.
    Keeping CGT without an inflation link is another reason why this essentially Conservative Government will haemmorage support.

    • lifelogic
      Posted September 10, 2012 at 9:22 am | Permalink

      Exactly. CGT, Income tax, inflation and IHT can take away most of your wealth in a very few years. If you do the calculations – even if you investments perform well. Just do the sums. They are a very effective wealth tax already.

  6. Nick
    Posted September 10, 2012 at 7:19 am | Permalink

    Taxes on taxes on taxes.

    Even if we look at the state pension, the effect of your decisions is that the state pension is taxed at 80%, or the costs of your running of it comes to 80%. The effect on poor people is the same. You’ve take 80% of their retirement income.

    Then, if they have managed to save in other ways, you’re going to even tax the 20% that you do give them.

    What’s happened is that you haven’t a clue about the effect of policy. The reason is that you’ve lost the plot when it comes to what taxes are for. They are payments for services. That link has been broken. The end result is now that taxes are the aim not the means of payment.

    The second effect of breaking the link is best illustrated by VED and fuel duty. Both pay for the roads 4 times over. Why shouldn’t they be hypothecated? That way you are controlled as to what you can do. People then realize the cost. You can’t then run deficits and leave debts to be cleaned up later.

    It’s the failure to tell people the level of the debts you’ve collectively created. They think that its a trillion because that’s what you tell them. However, its clear that its multiples of this. This lie, deliberately or by ommission or ignorance is the real problem in the UK.

    • Cliff. Wokingham
      Posted September 10, 2012 at 8:55 am | Permalink

      I agree!

      If you listen to senior politicians, both local and national, or to journalists, they always say “This measure/policy will raise X number of Pounds.”

      I think that, as the state wants to get bigger and bigger and take over the running of people’s lives, so the state will try to grab more and more of our money: we even have tax on tax now. (Duty on fuel and then VAT on that duty)

      I suspect we are close to the tipping point when the wealthy and able will leave the country and the poor will partake in civil disobedience or riot.

      I cannot understand why every new government wants to introduce more and more law especially given that the country actually used to run rather well for many years. The state needs to repeal many laws as they saisd they would do: our host and my MP was supposed to be working on the great repeal bill…..I wonder what happened to that.

      I even feel the criminal justice system, with all the new fines for very minor new “so called” crimes (bins crime etc) is being used as little more than an extension to HMRC.

      John, I was disappointed to read that the Government’s advertizing budget is having a major increase in order to “sell their policies and services” to the country……Good job we’re not skint as a nation isn’t it?

      • Bob
        Posted September 10, 2012 at 12:44 pm | Permalink

        “new fines for very minor new “so called” crimes (bins crime etc) “

        Bin crime is such a cowardly offence.
        Not like burglary. Burglary is a courageous offence.
        When are judges going to start awarding bravery medals to burglars?

        Is it only me who can see what a screwed up country this has become?

        • Mark W
          Posted September 10, 2012 at 3:33 pm | Permalink

          No, it’s not just you. However we have no representation in the political elites of this country.

          No Representation Without Taxation!!

          (Possibly refined to become “no vote for those that aren’t a net contributor”). Anyone voting for free sweeties from the shop won’t vote for anyone suggesting it has to stop.

      • uanime5
        Posted September 10, 2012 at 8:58 pm | Permalink

        New laws are needed because the country is constantly changing. For example increased access to the Internet has resulted in new laws on piracy and stalking.

    • Simon
      Posted September 10, 2012 at 11:53 am | Permalink

      The road fund licence hasn’t existed for decades, fuel duty and VED are now pollution taxes.

      It’s reasonably simple:

      1. Own a fuel efficient car, pay no VED.
      2. Own a fuel efficient car, pay less fuel duty.
      3. Don’t drive very much, pay less fuel duty.

      • Mick Anderson
        Posted September 10, 2012 at 4:20 pm | Permalink

        Of course you could have it completely linear (progressive as a pollution tax) and utterly simple by abolishing VED. It is the equivalent of about 4p/litre for an average driver in an average car. This saves the cost of collecting and administering VED, and the laws associated with it can simply be removed.

        • lifelogic
          Posted September 10, 2012 at 9:51 pm | Permalink

          Indeed but think of all the pointless jobs that might have to go!

        • Simon
          Posted September 11, 2012 at 3:05 pm | Permalink

          I think the official response to that is that VED is a nudge towards buying more fuel efficient cars.

          Personally I couldn’t agree more, scrap VED, put the tax on fuel, scrapping the SORN declaration in the process.

  7. stred
    Posted September 10, 2012 at 7:31 am | Permalink

    As far as I know the UK is the only country which applies CG tax to unreal gains. In France there is a taper with no tax on property after 30 years, previously 15.

    Brown argued that the change to 18% with no inflation relief was fair, because the amount would be less for short term gains and the same for most long term. Then the next lot put it up to 28% and kept the abolition of inflation allowances, arguing that the tables were too complex and difficult. In fact they were easy to apply compared with other changes, such as tapers mixed with tables. All we need are the old tables and it would be simple.

    Of course the top dogs who make gains over a shorter period with their bonuses paid in shares and options are still better off. But anyone who has a ‘nest egg’ for retirement is well and truly stuffed. Mr Cable described the tax as ‘fair’ when he came into office. He obviously disapproves of private investments.

    • stred
      Posted September 10, 2012 at 7:34 am | Permalink

      Does anyone know whether CG tax is applied to estates from the date when bought by the deceased- in addition to Inheritance Tax? I attended a talk by an accountant who thought this could happen in certain cases.

      • Acorn
        Posted September 10, 2012 at 11:11 am | Permalink

        http://www.hmrc.gov.uk/cgt/intro/basics.htm#3 . “Inheriting assets: If you inherit an asset, it’s not liable to Capital Gains Tax until you sell or dispose of it. You’ll usually need to get a valuation of the asset at the date of death, to work out the capital gain or loss.”

      • Bob
        Posted September 10, 2012 at 12:51 pm | Permalink

        @Stred
        As far as I am aware you pay 40% on anything over the nil rate band. CGT doesn’t come into it.

        What are the “certain cases” you refer to?

      • Matthew
        Posted September 10, 2012 at 2:09 pm | Permalink

        No – the estate is subject to IT and this is usually, paid from the estate, before you receive your inheritance. CGT does not apply. The value of the estate is the starting point.

        Perhaps the accountant was discussing a situation where you inherit a property that you live in and at a later date sell that property. Or you inherit another property or asset that you dispose of at some point.

      • Matthew
        Posted September 10, 2012 at 2:30 pm | Permalink

        Another instance – sorry
        If there is a long administration period – death to settlement of the estate, and assets are sold during the period by state representative then CGT could occur.
        If assets have appreciated since the death.

        This will be pretty rare

      • forthurst
        Posted September 10, 2012 at 8:03 pm | Permalink

        In principle, the liabilities of a deceased’s estate include any taxes which have been incurred but not paid prior to decease. IHT is due on the valuation of the estate on the DOD, which must be paid before any distribution to beneficiaries may take place. CGT may become liable on a difference between the valuation for IHT (acquisition value) and the disposal value prior to distribution to beneficiaries or on a subsequent disposal.

      • lifelogic
        Posted September 10, 2012 at 9:55 pm | Permalink

        No just IHT (no CGT on death) but can be cgt on later gains from the probate transfer value. I think you can also adjust the IHT if sold for less than probate value.

        From memory but please check with an expert?

    • Leslie Singleton
      Posted September 10, 2012 at 11:40 am | Permalink

      When I last had anything to do with it (no longer the case, Thank God) the consensus (by reason mainly of the inflation allowance) was that, though complex, if one had to have it CGT was at least fair. All that changed of course initially under know-it-all Brown and what it is now, apart from a dog’s breakfast, is beyond description.

  8. NickW
    Posted September 10, 2012 at 7:38 am | Permalink

    The genarality of tax policy is that you can either have a simple flat low rate with no exemptions or higher rates, which the higher they go, the more complexity they need in order to ensure there are no adverse effects on investment and business.

    I favour simplicity and low rates which do not cost a fortune to administer and collect and which maximise revenue.

    There should be a higher rate for any “investment” which is short term; (say) less than a year.

  9. Alte Fritz
    Posted September 10, 2012 at 7:40 am | Permalink

    As you remark, CGT was introduced to capture taxable income which had been disguised as non taxable capital. Now, 47 years on, we have a tax which taxes randomly, raises around the same as IHT and, for the richest, is, in effect, voluntary.

    Tax avoidance sits now in a quasi criminal category of evil practices. This is a strange debate because it goes further than what is the role of the state and what is needed to pay for it. The argument, which seems to gain ground, is that the state should determine , in effect, how much anyone should retain of their own property.

    Who said the Soviet Union was dead?

  10. A.Sedgwick
    Posted September 10, 2012 at 7:46 am | Permalink

    What a dog’s dinner and the take is about £3B p.a. My guess is less than 10% of the adult population pay any directly. So for me the starting point for any reform is the profile of those who pay e.g. business sales, wealthy retirees etc. and the political impact of any substantial change. Regardless of the rights and wrongs of CGT in principle the present rules are clearly chaotic.

    • Bob
      Posted September 10, 2012 at 1:12 pm | Permalink

      @A.Sedgwick
      “What a dog’s dinner and the take is about £3B p.a.”

      So, a little bit of a haircut on foreign aid and we could eliminate it altogether?

  11. David Jarman
    Posted September 10, 2012 at 8:01 am | Permalink

    The government is only concerned with keeping people slaves by taking every penny they earn over and above what they need just to survive. The amount of tax that is taken is completely immoral. It is also taken by those who limit themselves to it’s exposure by financing so much of what they do through the public purse.

  12. Matthew
    Posted September 10, 2012 at 8:29 am | Permalink

    One of the few good things Gordon Brown did was to reduce CGT from 40% and introduce taper relief. Although non business gains still, I think, got hit at 40%
    The rate and conditions seems to have been all over the place.

    Sure it’s too complex.

    In an ideal situation I would go with Nigel Lawson’s assessment that the rates for income and CG should be on par. There is no good reason why one should be taxed more heavily than the other.

    Parity would prevent abuse, as it’s often easy for many people to engineer a scheme to pay CGT instead of income tax. Although it may be challenged by the revenue.
    Ideal to me would be top rate income tax and CGT at 30% That would really show the world that the UK is the place to be.

  13. sm
    Posted September 10, 2012 at 8:50 am | Permalink

    CGT should be rolled into income taxes. It should be chargeable at the marginal rate of the tax,paye and NI. (Something like the Australian system). Or we could consider applying a NI surcharge on non- labour income.

    This would mitigate but not eliminate the shifting of income into capital gains to enable so that some very rich pay marginal taxes on profits/income at a lower marginal rate than cleaners.

    A small annual allowance of £1kpa should be allowed each year, this could be accumulated if not utilized. (Incidentally why not allow unused income tax personal allowances to accumulate-incentive/help long term unemployed?)

    Perhaps its time to remove ISA advantages?

    We all know inflation is used to levy tax, it drags people into higher tax bands, it increase costs directly with no relief. It is a difficult to avoid tax unless you consider real assets, which favours land owners and the wealthy already.

    Inflation is being hidden by demand contraction. At some point demand contraction/deflation slows and stops offsetting and we get inflation take off!

    Why not raise interest rates now slowly, introduce a land value tax, merge ni/paye and CGT? Asset values have been artificially supported (note BOE comments), the gains are illusory.

    And all to save the corrupt economic system we have at present, which will unchanged leave only welfare dependents(not by choice),worker/slaves(little disposable income) in the private and lower ranks of the public sector and then the top 5% or even less 1%.

    Oh and im sure top bankers and senior politicians will still receive massive undeserved rewards either in whatever form. Huge inflation protected defined pension payments?

    Time to reduce the size of these unearned public sector pensions an i mean the senior civil service and MP, quangocrats. Greece is a mirror for us to look at amazingly higher vested interests seem immune to a similar level of austerity. So it is in the UK.

    • Denis Cooper
      Posted September 10, 2012 at 11:00 am | Permalink

      “CGT should be rolled into income taxes”

      No, capital gains tax levied on an investment which has been built up over many previous years should not depend upon income during in the year of sale, and tax on income during the year of sale should not depend on the capital gains made on an investment built over many previous years.

      The two should be kept separate for tax purposes, indeed “earned” and “unearned” income during a year should be separated for tax purposes, with a separate annual personal allowance for each.

      • sm
        Posted September 10, 2012 at 10:47 pm | Permalink

        Do you want a simpler flatter tax system or not?

        Why should you pay income tax at 40% one year, then when unemployed the next pay no tax? There is no smoothing there.
        Also you generally get to choose when to crystalize a gain. Not many get a choice over income loss.

        Moving income into capital gains and avoiding taxes is a major issue which will sink the Romney campaign.

        Most of the gains in capital gains have been the growth in the money supply/debt which is inflation i bet any real growth is much less.

        ISA’s wont be much use if the value of shares falls when we eventually allow the correction?

        • Denis Cooper
          Posted September 11, 2012 at 7:33 am | Permalink

          I want the taxation of income earned by work performed in a given year to be entirely separated from the taxation of the income and capital gains from savings and investments acquired over previous years.

          I don’t want people to be moved up into a higher band for the tax on their salaries because they’ve had the prudence to set aside some of their income in previous years, equally I don’t want people to pay more tax on their savings and investments because they’re working harder and better and earning more.

          At present the tax system operates to put two virtues, prudence and hard work, into conflict, and that is stupid.

          I agree with your point about there being no smoothing of income tax across years, having myself been tipped into a higher tax band through a bonus based on performance over five years but dumped down into a single tax year, and while that’s not going to happen to many people very often it’s something else to look at.

    • nicol sinclair
      Posted September 10, 2012 at 12:45 pm | Permalink

      If you remove ISA advantages, you screw my pension pot – for what it’s worth. Lay off!

  14. oldtimer
    Posted September 10, 2012 at 9:00 am | Permalink

    Your account of the history of CGT is a microcosm of the complexity and absurdity of what passes for the UK tax system. Clearly it originated to offset a problem that was itself caused by the then distorions in the tax system (differences in tax rates on income and on capital gains). It has been distorted over and over again as successive Chancellors have engaged in a form of arms race against cleverer tax accountants who have found new ways and wheezes to beat each new generation of what passes for the CGT system or to promote investment in what politicians deemed to be “good” for the economy (such as the current EIS schemes. When the game is no longer worth the candle, they advise their clients to leave the country, to domicile themselves elsewhere for tax purposes.

    Politicians are not smart enough to know best. Thay should get out of the way of entrepreneurial and economic endeavour, or pretend that they can pick “winners”. In these respects the tax system should be as neutral as possible between charges on income, spending and capital gain. Neutrality should recognise the effect of inflation on capital gains (ignored in the current CGT regime) otherwise it will encourage short termism. The total tax take should recognise the practical limit of the total tax take (c35% of GDP) before it starts to depress economic activity. The rates should be simplified, with exemptions and qualifications reduced if not eliminated.

    Of course, none of this will happen in the UK (despite the evidence that such tax regimes can produce spectacular results). Politicians will continue to believe that they know best, that they have every right to meddle in, socially engineer and generally distort society into their own image of it and are entitled to keep their heads firmly stuck in the sand as the rest of the world passes them by.

  15. Mike Wilson
    Posted September 10, 2012 at 9:12 am | Permalink

    I buy something. It goes up in value. I sell it. The government takes a slice of my profit.

    You earn money. The goverment takes a slice of it.

    You spend money. The government takes a slice of it.

    It’s very hard to ‘get out from under’ – no matter what you do, the government takes some of your money away from you. Government is a huge weight on those of us that work hard and pay our taxes.

    I have to say, after 40 years or more of it, I’m getting really fed up with it.

    If the money was used cost – effectively, the amount taken could be halved. But it isn’t. And government waste and inefficiency keeps getting worse and worse.

    • nicol sinclair
      Posted September 10, 2012 at 12:46 pm | Permalink

      Hear, hear

    • Winston Smith
      Posted September 10, 2012 at 3:58 pm | Permalink

      Just do what increasing numbers are doing: opt out. Lie, cheat, avoid tax. MPs do it, Lords do it, BBC employees do it. Join them.

  16. Lindsay McDougall
    Posted September 10, 2012 at 9:30 am | Permalink

    At the risk of being this blog sites borer-in-chief “Taxes should be low and everybody should pay them.”. Also, inflation should be deducted before calculating the capital gain. Inflation is caused by state institutions and only by state institutions.

  17. Almost Ex Tory
    Posted September 10, 2012 at 9:36 am | Permalink

    John, Have a referendum compelling any future government to limit the tax take of the state (as a proportion of GDP) to a maximum value , 40% would be generous.
    This to be only overturnable by another referendum requiring a 70% majority.

    Have a similar one limiting the ability of government to borrow and allow a deficit again to a % of GDP.

    Index link peoples savings against inflation making any interest they received real and stop the ability of the state to inflate the currency to solve their financial problems. Is this not a form of theft, devaluing peoples past work that earned the money (tax already paid of course!).

    Institute the right of recall of an MP for a by-election whose “conscience”, performance and voting DO not match their constituents majority view. We have not become a 5yr “elected” dictatorship and “they work for us”.

    Cut immigration down to virtually nothing and don’t offset it by people emigrating. Allow able talented people to work via a visa that does not guarantee them or their dependants citizenship. They would be expected to return to their country of origin with their dependants. Any children born here would not be UK Nationals.

    The baby boomers dying off is a one off chance to get the population down by not replacing them with immigrants. There is no shortage of people and the future suggests there will be fewer jobs available (total) and even fewer to unskilled workers. There is nothing on the horizon for our own low skilled indigenous population. Don’t incentivise large families in any way.

    The UK would be a better place with fewer people living in it. We don’t need “Big Government” and more and more people paying taxes to fund it.

    Oh dear, I just woke up. It was a nice dream while it lasted.

    • sm
      Posted September 10, 2012 at 10:53 pm | Permalink

      Was it the red or blue pill?

  18. Lindsay McDougall
    Posted September 10, 2012 at 9:59 am | Permalink

    Slightly off topic but related:

    The average house price is about £160,000 and average household income is about £26,500. The ratio is therefore about 6, which is historically high.

    Average earnings increase with experience and average earnings are just under £40,000 if you have 20 years experience.

    These brief statistics may explain why the average age of first time buyers has risen to 37.

    In real terms house prices may have further to fall. What the authorities appear to desire is that houses keep their value in nominal terms while declining in real terms because of inflation. This will allow earnings to increase relative to house prices without causing negative equity. Neat, eh. Pity about the lenders.

    • Mike Wilson
      Posted September 10, 2012 at 11:17 am | Permalink

      The price of residential property has a direct relationship between the cost and availability of credit.

      The cost of credit is low – base rate is 0.5% and, if you are already in the market – i.e. have equity – you can borrow at absurdly low (from a saver’s point of view) interest rates.

      The availability of credit is currently low – with large deposits required and bankers scared of exposing themselves further to an over valued housing market.

      Now the bankers can no longer keep lending the same money by way of CDOs and MBSs (and any other acronym they could come up) – they need to improve their balance sheets and capital ratios. So, availability of credit will not improve any time soon. Probably not for 20 years.

      The cost of credit is highly likely to increase. Sooner or later the markets will demand much higher returns when lending money to the government and this will feed through to increased mortgage rates.

      At which point all bets are off and the housing market may well collapse. As it is transactions are approximately half the number of what had become a normal market.

  19. Mark
    Posted September 10, 2012 at 10:44 am | Permalink

    I don’t anticipate much in the way of capital gains on gilts: rather, there is a significant chance of capital losses, with most gilts trading at substantial premia to par on very low yields. By excluding gilts from the CGT regime, the government is not making them available for use as offsetting losses against other gains – in fact making them even less attractive to private citizens as investments.

    The same applies to exemption for home ownership.

    CGT as presently constructed is simply a savage wealth tax on realisation of long held assets, because it takes no account of inflation. It discourages the reallocation of capital to spread risk or to fund new enterprise.

    The real purpose of CGT should be to prevent transmutation of income to gain taxed at a lower rate where no substantive risk has been taken, and no more.

  20. merlin
    Posted September 10, 2012 at 10:48 am | Permalink

    Now you know where the expression the only certainty in life are Death and Taxes. We all know what is going to happen rather than what most people on this site want to happen that is taxes will continually increase and we will all continue to complain that we are being taxed too much. In our heart of hearts we all know that whatever Government is in power there will be minimal change and we will continue to complain and still be taxed. The only problem is that Government is getting larger and larger which means that we will be taxed more and more, I’m just waiting for the first European tax which we will all be taxed by. The question is what benefit as an individual do I get from the tax system in practice, 2 things spring to mind:-

    1) My bins emptied, which I could do myself a lot more cheaply.

    2) The state pension, one of the meanest in the western world.

    The only people who benefit from taxes are public sector employers and employees in their guaranteed jobs for life and public sector pensions. The average private sector worker gets virtually nothing at all. People say but what about all the wonderful council services you could use. In our local area we have had a new council centre opened by the queen it has a library and a swimming pool, you can only swim as an adult at certain specified times because it is mainly populated by screaming children, so most adults go to a private club. an example of the benefits supplied by the over taxed british public.

    • uanime5
      Posted September 10, 2012 at 9:13 pm | Permalink

      Regarding state benefits you forgot about healthcare and education, both of which the average person will need at some point in their life. There’s also the police and fire service in case you need them.

  21. forthurst
    Posted September 10, 2012 at 11:42 am | Permalink

    Every year I spend time reading through the CGT regulations in order, firstly, to minimise exposure, and second, to calculate what if any has become due; in order to do the latter, I check to see if the spreadsheet I used last time can be used with modifications or needs to be rewritten etc. The government is concerned to ensure that taxes are cost effective to collect. What about the amount of time people have to waste or pay accountants for?

    One can only assume that the government wishes to deprecate saving by investment in British industry in favour of buying a more expensive Principal Private Residence. (It is well known that PPR exemption is widely used to avoid paying CGT on property portfolios.) In order to invest in shares, one also has to pay ‘tax’ to the spivs who dominate the stock market with their computer programmes and market rigging strategies; is it not time that the government encouraged investment in British industry by cleansing the stock market of those that are there solely for (ultra-)short term speculation and by creating a level playing field with ‘investment’ in bricks and mortar?

    The reason this country is in poor financial health, is because most of the population are most of the time engaged in activities which do not add value; this includes all the time people spend complying with needlessly complex rules and regulations.

  22. Conrad Jones (Cheam)
    Posted September 10, 2012 at 12:17 pm | Permalink

    Gold Sovereigns and Gold Britannias are CGT exempt. Does the Government want us to invest in Gold? Gold is also VAT Exempt.

    Perhaps Gold is real money.

    • Bazman
      Posted September 10, 2012 at 8:43 pm | Permalink

      Only of it is made out of gold.

  23. oldtimer
    Posted September 10, 2012 at 12:18 pm | Permalink

    OT post:
    Spiegel Online reports that Angela Merkel has now decided that a Grexit is too risky. Germany stands to write off c$70 billion. More importantly it would compromise her re-election chances next year. Oh, and President Obama does not want a Eurocrisis on his hands when he too is trying to get re-elected.

    So the word out is this. Expect the forthcoming troika report to declare that Greece is indeed making progress, even though it is not on schedule. The can can then be safely kicked down the road at least until after the German elections next year.

  24. Simon
    Posted September 10, 2012 at 12:20 pm | Permalink

    I have only my personal experience to go on, but, when capital gains taxes were tapered to 10%, taking the risk of helping to start a new business seemed much more worth while.

    Most start-ups fail; the people who repeatedly invest their time energy and money in trying to get business ideas off the ground have a simple calculation to make: Is the chance of success multiplied by the return on success worth the effort? The staff that work in these businesses for lower-than-market pay plus shares have a similar question to ask.

    The higher capital gains are on entrepreneurship, the less of it there will be.

  25. Conrad Jones (Cheam)
    Posted September 10, 2012 at 12:44 pm | Permalink

    How is CGT worked out without taking into account inflation?

    If we buy an Investment costing £100, how many years until that £100 has lost half it’s value?

    If inflation is running at 10% (no, I’m not using the CPI Figure) then it takes approximately seven years (applying the Rule of 72 ).

    So in seven years, my £100 can only purchase the equivalent of £50 of goods and servcies that it could at the start of the investment. But the Government does not take that into account. If the £100 doubles to £200, the Governmnet says that you made a profit of £100, even though in real terms – you can only buy the same goods and services you could 7 years before with the entire £200.

    So the Government take 18% of the £100, leaving us with £182 – leaving a shortfall in real terms of £9 of purchasing power when adjusted to the orignal Investment start date.

    This would occur in the Good Times. Now it’s even worse, as Interest Payments or Capital Gains, are well below Inflation – unless you’re into transporting hard drugs into Miami in the middle of the night.

    Substituting the Gain of %10 with 2%, it would now take approximately 36 years to double our investment so there is no incentive for people to save, only to spend, consume and borrow.

    People who save money now, are having their wealth transferred away from them. It is a hidden taxation. It is unavoidable with Credit Money – the Economy has to be in perfect balance for it to work and be fair. Our economy was like an Elephant trying to balance on a knitting needle – unfortunately, Gordon Brown came along and gave it a bottle of neat Scotch, and it fell off, crushing the money supply.

    • Conrad Jones (Cheam)
      Posted September 16, 2012 at 2:32 pm | Permalink

      In simple terms:

      Why isn’t inflation taken into consideration when we pay tax on investment profits?

      Or do we have to play some clever accounting trick to address the balance?

      • Conrad Jones (Cheam)
        Posted September 16, 2012 at 2:41 pm | Permalink

        I guess the answer is that the Government does not feel responsible for Inflation because it does not inflate the Money Supply.

        Private Banks cause inflation – in which case, Private Banks should be made liable for loss of earnings from Investments and Savings as a result of inflation.

        Tax payers are actually subsidising a Banking System that reduces their returns on savings which have already been taxed. Multiple layers of Income Tax on NI Tax on Inflation and then we’re taxed on any numerical increases in our original sum. Pensioners are reciving a double whammy of negative interest rates (through inflation), and reduced Annuities through QE.

  26. Vanessa
    Posted September 10, 2012 at 1:29 pm | Permalink

    What pi…..s me off is the fact that there are too many taxes and most, tax money which has already been taxed probably 6-9 times already in other ways. Why do we have to pay “value added Tax” on everything we buy? What is the added value???? Why do we have to pay it on clothes? What is the added value there? The EU thinks of nothing but money and how to fleece us more and more. We pay an annual membership fee, we pay VAT on nearly everything to them, we pay charges for landfill and yet again fines for not implimenting their ludicrous directives etc. etc. And they still ask for more ! Sorry, DEMAND.

    • Bob
      Posted September 10, 2012 at 2:16 pm | Permalink

      @Vanessa

      Our politicians encourage us to keep arguing about what should be taxed and at what rate.

      It stops us from discussing what they are spending the money on.
      That is the real problem!

  27. backofanenvelope
    Posted September 10, 2012 at 2:24 pm | Permalink

    Why not make it simple? All inherited wealth is taxed as income.

  28. merlin
    Posted September 10, 2012 at 2:52 pm | Permalink

    Going back to yesterday’s discussion about IHT, this money is being taxed after tax has already been paid on it, so in this circumstance you actually pay double tatxation and I suppose you could argue it may be triple taxation. Surely you should only be taxed once?This would be far simpler, not that I agree with any tax anyway.

  29. William Long
    Posted September 10, 2012 at 3:24 pm | Permalink

    Everyone hates the Chancellor whoever he may be, but one who actually gave us simplicity would immediately become a hero! Any profit whether capital or income should be taxed at the same rate; capital profits should be indexed and so should losses as they once were. Working out indexation was a pain but doable and importantly indexation helps keep the government awake to inflation. Residential property (including the home) should be taxed in the same way as any other asset. Harold Wilson had not the guts to face up to this and the result has been major distortion of house values against other investments and punitive stamp duty payable at the time of purchase when liquidity is lowest, instead of after a sale when funds are there. If the rate of tax was set at a reasonable level the increase in tax take would probably be for John to change his view that IHT needs to be kept! The IHT nil rate band could be changed to a lifetime allowance for CGT (as they have in Canada) thereby enabling the ending of all other CGT breaks – ISAs, EIS etc etc.

  30. BobE
    Posted September 10, 2012 at 5:08 pm | Permalink

    The stalking horse is near gentlemen.

  31. John Jill & Co
    Posted September 10, 2012 at 5:23 pm | Permalink

    Capital Gains Tax is another pernicious tax which destroys the country’s capital stock and discourages enterprise. It is voluntary in the sense that you can avoid the tax by not selling the asset in question – the effect of this is to stagnate the capital stock. Capital remains tied up in unproductive areas and mal-investments are not unwound, because everyone is waiting for the rate to fall from the present extortionate 28% rate.

    The suggestion from John Moss of a tax which tapers to zero after an asset has been held for some years is the best idea (and has often been suggested before). Short term gains would be taxed, but long-term investments would not, and the complication of whether to relieve inflationary gains need not be considered if the rate goes down to zero.

    • Denis Cooper
      Posted September 11, 2012 at 8:07 am | Permalink

      The basic misconception behind the idea of a taper was that the capital available to a company for productive investment is somehow reduced if an investor sells his shares on to another investor. In fact from the point of view of capital available to Company X it matters not a whit whether I keep my 1000 shares for the rest of my life or I sell them to you today. What matters in that regard is that somebody buys the 1000 shares when they are first offered by Company X to raise capital, and I’d be less likely to do that if I thought that it would be difficult or impossible to sell them on if I wanted or needed to do so. In the past I actually bought some shares offered by a number of small start up companies, knowing that there would be no proper market for them if I wanted to sell them on to realise their value and so I’d have to wait for the companies to come to the end of their planned lives and go into voluntary liquidation, and while that worked out OK in some cases it didn’t in others and I’d now be reluctant to risk doing that again.

  32. merlin
    Posted September 10, 2012 at 5:30 pm | Permalink

    The more important something becomes the more complex it becomes.

  33. David Langley
    Posted September 10, 2012 at 5:58 pm | Permalink

    Any money I ever invested was from cash I had already paid tax on. The government robs me more than any crook I have heard of. From cradle to grave I am hounded by tax grabbing politicians. Please leave me alone with my hard earned gains.

  34. Bazman
    Posted September 10, 2012 at 6:14 pm | Permalink

    What about lowering the rate and then a crackdown on tax avoidance and tax ‘efficient’ scams. You will pay or you will not be in business or you can take your business elsewhere. We don’t respond to threats. What is there not to understand?

  35. RottenEgg
    Posted September 10, 2012 at 7:08 pm | Permalink

    Arbitrary, heavy or unjust tax merely motivates people look at options – Look at the last round of stealth taxes – When company car tax came out – the brains ditched company cars, got allowances through PAYE, used our own vehicles, then the tax man owes us, poor Gordon Brown . IF too high we take assets elsewhere – if too complex…with complexity comes variability of interpretation and loopholes, they’ll use the confusion and loopholes and look for efficiency on tax. What some call avoidance is merely your accountant advising you to do something one way or another to be efficient. However, when something swipes 40% off – no wonder people jump to overseas companies, offshore accounts, trusts and other instruments / alternatives. And quite honestly, I dont blame them…The tighter the Govt. squeezes – the more slips through their fingers.

  36. Jon
    Posted September 10, 2012 at 8:14 pm | Permalink

    One could understand the capital gain in political terms for raising CGT to 28% for wealthy company directors who may take a rather generous amount in shares rather than taxable income.

    The 28% applied to anyone earning over the basic rate tax threshold, Mmmmm? Thats a lot of PAYE people , hardly the target for political gain?

    Coupled as you suggest with exemptions its the directors with remuneration discretion at their disposal that remain tax mitigated.

    If we take the higher earning PAYE bod through routine financial advice then their portfolio would include gilts. However a 28% onshore CGT only raises the attractiveness of offshore. Thereby also negating the attractiveness of buying UK gilt in the exemptions as what about the rest of the portfolio.

    Yes tax is used to discourage and encourage but too much complexity and you end up chasing your tail.

    I have watched Margaret Hodges’ select committee around HMRC and the discussions on deals that are struck for the likes of Vodafone. Make something so complex you create an industry in itself within the HMRC.

    The rate for CGT should be mindful of the freedom for larger money to go offshore. The more money that does will attract the better fund managers and also bring down the cost of doing so making it more attractive.

    Its a growing boom product.

  37. uanime5
    Posted September 10, 2012 at 9:19 pm | Permalink

    I recommend that CGT on shares should be increased to discourage people from paying themselves in shares to avoid income tax.

    • Denis Cooper
      Posted September 11, 2012 at 7:45 am | Permalink

      In the small number of cases where people are being paid in shares and avoiding income tax, why not treat earned income which is paid as shares as still being income for tax purposes?

      Anyway, isn’t that what is done already unless the tax authorities have agreed that a scheme, eg an employee share scheme, will be exempt?

      And why choose instead to try to deal with that perceived problem with a small number of people by penalising all the other people who are not being paid in shares, who have paid income tax, and who have invested some of their spare income in shares as a prudent provision for when they can no longer earn?

  38. Max Dunbar
    Posted September 10, 2012 at 10:53 pm | Permalink

    To make capital gains means taking risks. The higher the rate of tax on possible gains the less attractive the risk becomes and therefore tax receipts may diminish accordingly.

  39. Brian S
    Posted September 11, 2012 at 1:39 pm | Permalink

    Mr Redwood

    It is clearly the case that at 28% tax rates with no adjustment for inflation that those of us sitting on property gains are reluctant or unwilling to sell properties that we own. They may be properties that require refurbishment or redevelopment which would generate work and income within the construction and financial services sectors and provide up to date accomodation for new business or residential purchasers. Sales and purchases of these properties would generate stamp duty on the purchase and vat on legal and agency fees for the Treasury. The money generated by the sales would be reinvested back into new assets providing further stamp duty and vat. Many properties may have generated substantial “paper” gains over the last 25 years but when inflation is taken into account the real increase is significantly less and it was a grave mistake of the Treasury to remove indexation and taper relief and then increase the rate to a penal 28%. If CGT on short term gains of up to 2 years was set at 20% and longer term gains for assets held for more than two years was set at 10% it would change taxpayers attitudes at a stroke, properties and other assets would be sold resulting in a significant increase in receipts to the Treasury. There is an inherent reluctance to sell an asset if after tax you have a significantly reduced sum left to reinvest in order to provide the same income.

    Regards
    Brian

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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