This year’s unsurprising shortfall in Capital Gains tax revenue (-23%)

 

The Treasury have been too optimistic about how much extra revenue they will get from a big hike in the rate of Capital Gains Tax. Indeed, it is coming in this year £1.2bn down on last year’s forecast, or a whopping 23% shortfall.  Just as they underestimate the extra revenue you get in from Income Tax rate cuts, so they exaggerate the extra revenue you get from tax rises.

In 2011-12 Capital Gains Tax brought in £4.3bn. This fell to £3.9bn in 2012-13 with   the continuing  higher rate, as I predicted but as many sought to deny. That was  a fall  of 10% in revenue. Not to be downhearted, the Treasury decided this was a one off event. They forecast a healthy rise in CGT this year to £5.1bn in the 2013 budget. A year later, in Budget 2014, the forecast for the year just about to end slumped from £5.1bn back to the previous year’s £3.9bn, still 10% lower than 2011-12.

The Treasury do not seem to understand CGT. People with assets have considerable scope to delay or cancel sales if the prospective  tax bill is too high. Sometimes they can find offsetting losses to take if they do wish to sell something sitting on a profit. People with flats in London they do not use very much any more decide to keep hold of them as they do not want to pay all the CGT. People with shares sitting on good gains delay sales, and phase them when they have offsetting losses and allowances to cushion the tax bill. Assets which could be better used by others are not sold on.

The rate at which you would maximise CGT revenue is likely to be a low rate because it so easy for people with assets to avoid this tax quite legally. It is not tax avoidance to sit on an asset you no longer need because it stands on a big gain. Gordon Brown seemed to understand this, and took CGT down to 18% which may well be near the optimum rate to maximise the revenue. People wanting the public sector to spend more should worry that CGT is too high to maximise revenue at the moment. The Treasury needs to improve its model to forecast this tax more accurately.

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87 Comments

  1. Freeborn John
    Posted April 5, 2014 at 5:41 am | Permalink

    Maria Miller has to go. The expense (problems ed) should be unacceptable but the threats (others? ed) made to newspapers to go easy on their reporting of her (expenses ed) or face more press regulation is totally unacceptable and highlights the danger of an government control of the press. She is a character totally unsuited for public office and needs to be got rid off straight away with no prospect of return.

    • Lifelogic
      Posted April 5, 2014 at 2:19 pm | Permalink

      Indeed Cameron, true to form, is backing the wrong horse here. He even says the journalist was not threatened by the advisor, has he not heard the tape? Does this silly minister have some hold over him. Also is it true that a minister for even a week gets a pension for life as I heard claimed?

      Reply Ministerial pensions are contributory like MP pensions, so a Minister only gets a pension for service carried out and payments made.

      • Hope
        Posted April 5, 2014 at 9:10 pm | Permalink

        The half hearted apology was to the house not the commissioner and she thanked the committee, no wonder they let her off lightly and reduced the amount she should pay back! This is self -regulation which allowed intimidation and bullying of the investigator. All the hallmarks of the Elizabeth Filkin travesty that was the forerunner to the last expense scandal. Cameron arrogantly tells the public this should be and end to the matter! If Cameron thinks this is reform from the expense scandal or a new politics then his arrogance and contempt for the public is far greater than we could ever imagine. Same sort of sleaze and low standards that brought an end to the Major government.

    • acorn
      Posted April 5, 2014 at 2:31 pm | Permalink

      Something is going on. There is a distinct lack of MPs jumping in front of TV cameras. The MPs know something we don’t know. Has she been shafted by someone off stage or are they all just as guilty as she is with the expense form scams?

      At the rate we are going, there will be fewer MPs than IPSA people; committees and commissions, monitoring MPs morality and criminality. “What a rotten shower” as TT would have said.

      I suppose an “MP recall” procedure, US style, would be useful at this time, but the numpties of Basingstoke would vote for any CCHQ lobby fodder with a blue rosette on it anyway. Non Partisan Primary Elections could have eliminated the problem of Maria at the first hurdle.

      There is currently no mechanism to improve our shagged out, carpetbagger infested, democracy and who cares enough to change it anyway. Except say, if we get rid of Scotland and UKIP get enough seats, there just might be an opportunity to get rid of our successive elective dictatorships.

  2. Lifelogic
    Posted April 5, 2014 at 5:48 am | Permalink

    Exactly why sell one property (or other investments) for another if you have going to pay a huge sum in CGT, stamp duty or SDLTl, legal fees, agents fees and the rest just to have only perhaps 70% of the investment to reinvest. Some complex role over relief is sometimes available but far too restrictive and complex as usual.

    As you say about 18% but only after inflation adjustment is about right.

    The absurdly complex system with very high rates of tax is hugely damaging to confidence. If means with have large numbers of tax officers, accountant and lawyers doing little on any productive use. We want fewer parasitic activities both in and out of the state sector not more.

    Mind you the aim should not be one of maximum revenue generation for the government but maximum good for the voters. About 20% of GDP should be what the government spends not nearly 50% as they have been.

    Let us get our numbers of Lawyers and the likes down to sensible levels of about 10% of current.

    • Lifelogic
      Posted April 5, 2014 at 5:55 am | Permalink

      I estimate that perhaps 50% of my time is spend dealing with tax and tax planning, other regulations, employments regulation and endless bureaucratic or legal matters. They all hugely distract me from running my businesses and from real and far more productive activities. They discourage me from employing more or expanding in the UK.

      • alan jutson
        Posted April 5, 2014 at 2:49 pm | Permalink

        Lifelogic

        Have exactly the same problem at the moment with the Inland Revenue and Customs and Excise with regard to a family member.

        They ignore all correspondence, both written and telephone, and keep on sending demands for tax which is simply not owed, last one received this morning.

        I really am thinking of accusing them of harassment.

        Can never get to speak to the same person twice given the stupid system they operate of farming out calls and letters to any tax office in the Country.

        Have so far spoken to Liverpool, Cardiff, Belfast, and last week Bradford, all to no avail.

        Their communication/computer system does not even have their own letters on file, so they are completely unaware of past correspondence.

        John, whatever happened to being able to use your own local tax office to deal with your affairs, when as a last resort you could simply turn up and speak face=face with someone, who could actually look at all of the correspondence and thus resolve any outstanding issue.

        The whole inefficient system must cost us taxpayers a fortune.

        Now they are going to powers to confiscate money from Bank accounts !!!!!

        So much for democracy, and innocent until proven guilty.

        • lifelogic
          Posted April 5, 2014 at 8:17 pm | Permalink

          My experience exactly if you get any reply to a letter at all it is from someone who clearly has not bothered to read your letter nor address the issues raised. The inland revenue 20 years ago was far more efficient. But then they have an absurd system to run.

      • stred
        Posted April 6, 2014 at 7:07 am | Permalink

        The latest non-bonfired regulation, following on from bat surveys is that every house or flat has to have a Legionaires Disease risk assesment before it is let. Normal price around £200. This presumably require a visit to see if the house has dodgy air conditioning or not.

        • APL
          Posted April 6, 2014 at 9:42 pm | Permalink

          stred: “This presumably require a visit to see if the house has dodgy air conditioning or not.”

          Or, may simply be a check on how many legionnaires are living at the premises, which might be just as useful.

          • stred
            Posted April 8, 2014 at 1:56 pm | Permalink

            Just checked prices and found a landlord/agent blog. The HSE widenened the need for Legionaires checks 2 years ago, to include hot water supply with tanks under 300 ltrs. This meant moving below industrial to domestic. It happens where water is stored below 45 deg C, but if turned up to 60, then there is a risk of scalding. Particularly dangerous for pensioners who use showers. Apparently, there has been one death this century but it doesn’t say whether this was domestic.

            One landlord with a dry SOH has pointed out that it is very important, as his grandmother was in North Africa during the war and caught a very nasty disease from a Legionaire, which told a lot of penicillin to get rid of.

  3. Mike Stallard
    Posted April 5, 2014 at 6:13 am | Permalink

    Generally speaking people who have not read Chuang Tzu in the Penguin edition, as I have, see life as a sort of competition.

    If you reward the ones who are really trying to help society along by providing stuff, by living well and running things, then you will get more of them. Society will encourage people to build, to provide, to live well, to make work for others so they too can live well with their heads up and bring up children with a future.

    If you see helpers as wicked swindlers and take their money, they will leave your greedy avaricious and unfair country and will go elsewhere. Helpers see paying tax as a voluntary contribution, an amicable grant, and they have the accountants and lawyers to make sure they keep their rewards.

    This is a moral point. People who help society ought to be rewarded. People who do not (like me) ought to let them get on with it. It really matters who you reward and who you punish.

    • margaret brandreth-j
      Posted April 5, 2014 at 5:33 pm | Permalink

      Even the people on benefits pay bills to keep someone in a job

      • lifelogic
        Posted April 5, 2014 at 8:19 pm | Permalink

        No they do not they take tax of others and thus on balance destroy jobs.

      • Bob
        Posted April 5, 2014 at 10:30 pm | Permalink

        @margaret brandreth-j

        people on benefits pay bills

        Correction, their bills are paid for them by taxpayers.

        • margaret brandreth-j
          Posted April 7, 2014 at 12:59 pm | Permalink

          You speak about a form of distribution , not factual accuracy.

  4. arschloch
    Posted April 5, 2014 at 6:35 am | Permalink

    Do not worry Maria will be making a nice big contribution on the million pound gain from the sale of her taxpayer financed house. Thats of course if she can remember to put the correct figure in on her tax return

    • Freeborn John
      Posted April 5, 2014 at 11:50 am | Permalink

      it is not just about the money. There is a need to root out someone so obviously willing to put her personal self-interest ahead of the public interest, e.g. in a free-press. The bad attitude displayed by her half-baked apology and thanks to the Commision only for bringing the matter to an end (so she thinks) rather than exposing her wrong-doing is breath-taking. Someone with her priorities has no place in public life.

    • alan jutson
      Posted April 5, 2014 at 2:53 pm | Permalink

      Arschloch

      “….taxpayer financed House…..”

      No tax to pay if it is registered as her Primary Residence.

      Remember you can at the moment (soon to change I understand) switch properties without any proof.

      Reply It was her second residence according to her expense claims.

      • miami.mode
        Posted April 5, 2014 at 10:37 pm | Permalink

        Response to reply
        According to the Telegraph she switched it to her main home when the expenses scandal broke in 2009. Why would anyone have expected anything else?

      • Bob
        Posted April 5, 2014 at 11:11 pm | Permalink

        @JR

        Reply It was her second residence according to her expense claims.

        “second home” designation for Parliamentary expenses purposes and “Principle Primary Residence” designation for CGT avoidance purposes are not mutually exclusive.

        Mr Redwood, can you state categorically that she paid CGT on the sale?

        Reply No, of course I cannot. I do not know all the detail of Mrs Miller’s tax affairs. Like anyone else Mrs Miller will have to pay CGT on the sale of a second home but not on the sale of her main home, if she owned more than one.

      • alan jutson
        Posted April 6, 2014 at 5:39 am | Permalink

        Reply – reply

        At the time of claiming it was, but who is to know if this was not changed just before the sale.

        Only the Inland Revenue and Maria !

        • Bob
          Posted April 6, 2014 at 10:09 am | Permalink

          Mr Redwood,
          Re: Maria Miller’s “second home”.

          Under the circumstances, do you think she should clarify whether or not she used the PPR exemption to avoid paying CGT on the £1.2 million profit?

  5. alan jutson
    Posted April 5, 2014 at 6:36 am | Permalink

    The simple fact is John with no taper relief there is simply no point in selling long term held assets, which will very nearly automatically show a big gain through years of inflation, if you do not need the cash, and can raise finance (if needed) through other means.

    Certainly keep Capital gains tax if you want to, but for simplicity, make it the same rate as the basic income tax rate, and allow taper relief down to zero after 10 years .

    Surely what the Government would ideally want, is for people to continue to sell and purchase products and services, then with the money flowing around the system, more tax is due on VAT, stamp duty, etc on every transaction.

    What happens now is assets are kept, the money does not flow, so no other tax is collected and raised.

    • Edward2
      Posted April 5, 2014 at 11:23 am | Permalink

      I agree entirely with you Alan.
      Taper relief should be brought back. It is just as big a factor in falling revenues as the high rate itself.
      It is unfair that an asset bought many years ago, that has risen in price simply because of inflation, should be taxed at 28% on what is not really a capital gain at all.

      Also it is strange that when our nanny state wants to change our behaviour, for example, less smoking, less pollution from cars, less drinking, then higher rates of taxes are used to do this, yet in areas like income tax and capital gains tax they think ever higher taxation will lead to ever higher revenues.
      Good to see them proved wrong.

    • Gary
      Posted April 5, 2014 at 12:03 pm | Permalink

      The unintended consequences of the meddling in the economy by the pompous fools. Asset bubbles all around, and nobody willing to hold cash and save. These puffed up charlatans are wrecking the economy. If they were half as good with the economy as they are fiddling expenses we would be prosperous.

      The govt is the most efficient looting machine ever devised. The public is finally catching on. I hope there is hell to pay.

    • stred
      Posted April 5, 2014 at 2:42 pm | Permalink

      Spare a thought for people trying to sell a house in France to escape wealth tax. The randy little bloke in charge has decided to change the name of their CGT to a ‘social charge’. It works the same way, but without a taper for foreigners. Then there is no longer an offset on British CGT against French CGT as it is a social charge, with a different name. Donc, the real CGT over a house bought 25 years ago is about 60% plus the French charge of (from memory) 16%, plus 10% sales tax and 10% estate agents fee.

      • alan jutson
        Posted April 6, 2014 at 5:45 am | Permalink

        Stred

        Yes that is what a Socialist Government gets you.

        They always want a bigger share of your wealth, than those who own it.

        These constant changes in tax rates and rules and regulations, make a nonsense of any long term planning on savings, investments or large scale purchases.
        Would not be so bad if it was not all retrospective,

        i.e. You paid the rate due at the at the time of the purchase when you do sell, then at least you would have no excuse, as you entered the purchase knowing the rules at the time..

  6. Richard1
    Posted April 5, 2014 at 6:47 am | Permalink

    Yet another example, if one were needed, of the Laffer curve in action. We don’t know exactly where the revenue maximizing rate is for either income or capital gains tax. But we can observe that since the Thatcher govt came to power 35 years ago, every time a tax rate has been cut receipts have risen and every time a rate has been increased, receipts have fallen. This is another example on top of the earlier one on the 50p to 45p ncome tax cut.

    The evidence is so overwhelming we really need to ask about the mentality and motivation of leftists who deny the Laffer curve. People like Ed Milliband and Ed Balls are not stupid. They can see the evidence and presumably they like the idea of high tax receipts which they can then spend on welfare, wage increases as commanded by public sector unions and wind farm subsidies. So why would they argue for high rates? It is because the politics of envy still has resonance, partly because many people are not aware of facts such as those you cite above. For sustained economic recovery in the UK we need to return to being a low tax competitive economy which is attractive for investment and entrepreneurship. Beware the spectre of a French style disaster if Labour get back in!

    • uanime5
      Posted April 6, 2014 at 5:23 pm | Permalink

      But we can observe that since the Thatcher govt came to power 35 years ago, every time a tax rate has been cut receipts have risen and every time a rate has been increased, receipts have fallen. This is another example on top of the earlier one on the 50p to 45p ncome tax cut.

      So people sell their assets and bring forward their bonuses to avoid increased taxes. That’s only the effect in the short term, not the long term.

      The evidence is so overwhelming we really need to ask about the mentality and motivation of leftists who deny the Laffer curve.

      Your claim that lowering taxes always increases tax revenues isn’t what the Laffer curve shows. It shows that if taxes are reduced too much that tax revenues will fall.

      It is because the politics of envy still has resonance, partly because many people are not aware of facts such as those you cite above.

      What facts are you referring to? That the wealthy can pay accounts to mitigate tax increases in the short term?

      For sustained economic recovery in the UK we need to return to being a low tax competitive economy which is attractive for investment and entrepreneurship.

      Even though many of our competitors are doing the opposite. Germany has higher taxes than the UK yet performs economically better. Also many low tax states in the USA are economically worse off than their higher tax counterparts because the low tax states can’t afford good infrastructure.

      Beware the spectre of a French style disaster if Labour get back in!

      This French style disaster has resulted in France recovering its pre-2008 GDP, something the UK won’t achieve for several years.

      • Edward2
        Posted April 6, 2014 at 6:20 pm | Permalink

        Uni
        We are a very long way from reducing taxes to the lowest levels of the Laffer curve when theoretically revenues drop off.

        The first stage would be to get those on the left to accept that reducing rates can bring in greater revenue.

      • Richard1
        Posted April 6, 2014 at 8:37 pm | Permalink

        You are in denial on this issue. The Laffer curve indeed says tax rate could be cut below revenue maximizing potential. 0 rates will bring in 0 revenues. But in the UK as elsewhere, reductions in rates have brought sustained increases in receipts. This is the basic fact the Left must face up to. Perhaps its worth lower tax receipts in the leftist mind due to the warped politics of envy? But at least be honest about it.

      • Richard1
        Posted April 7, 2014 at 3:43 pm | Permalink

        The recession induced in the UK by the Labour govt was the worst anywhere in Europe apart from the Eurozone basket cases. No wonder its taking longer to recover.

  7. APL
    Posted April 5, 2014 at 7:58 am | Permalink

    http://www.telegraph.co.uk/finance/newsbysector/energy/10737266/Britain-can-cut-gas-prices-by-working-with-Europe-says-Mandelson.html

    I see your chum Ken Clarke is up to his old tricks on the same platform as Peter Mandleson arguing for a ‘single market’ in gas prices.

    What a creepy totalitarian newspeak phrase for a supposed Tory to use.
    ‘A single market’ means a single market along the lines of ‘The single EU market’.

    It also means a price fixing cartel not a market at all – a cartel where connected people like guess who* get to skim their commission for fixing up deals at the expense of the British energy buying public.

    What repulsive reptiles these two are.

    And by the way, why is Ken Clarke still in the Cabinet?

    *”The Labour peer, who has business links with Russia”.

    • Vanessa
      Posted April 5, 2014 at 10:41 am | Permalink

      On a similar note – why is the (mistaken ed) bully Ms Miller still in the cabinet ?
      If anyone should be removed and “stepped down” it is she. In The Telegraph today we are told how she bullied the MP Watchdog – no less. Is this the one which gives you all an 11% pay rise ? How dare she take my money for her own greedy ends.

      etc ed

      Reply There has been no 11% pay rise for MPs, and none is planned this Parliament.

      • arschloch
        Posted April 5, 2014 at 3:04 pm | Permalink

        Even if there was a pay rise of this size it would be peanuts in comparison to the situation MPs find themselves now. Forget about their ability to stick their wives, kids and boyfriends on the payroll. The taxpayer is now on the hook for supporting their second home purchases, and apart from the CGT liability, the MP can keep the gain for himself no matter how big its is, it can run into millions and its all perfectly legal. Stick on top of that the final salary scheme, which also dumps an unlimited investment and annuity liability on the taxpayer, the UK must now have the most well paid legislators in the world. No MP in his right mind, unless he is terminally ill and wants the cash fund instead of an annuity, will bother using the new “freedoms” to plan his retirement thats for the mug taxpayers to get ripped off with.

        Just to keep the heat on Maria this is worth a read purely for the fact on how much time she saves commuting to Westminster from Wimbledon instead of Bsingstoke, fifteen minutes. Oh sorry I forgot she is probably using a chauffeur driven ministerial Jag instead. Are not MPs worth every penny? http://www.theguardian.com/commentisfree/2014/apr/04/maria-millers-great-hypocrisy-representing-people

        Reply The current MP expenses scheme does not offer any help to buy a house and offers no assistance with a mortgage, unlike the old one it replaced. The Pension scheme is contributory. UK MPs are paid considerably less than legislators in some other advanced countries.

        • arschloch
          Posted April 5, 2014 at 6:20 pm | Permalink

          John come on you know the cost of providing your pension dwarves the amount that you have paid in personal contributions. Presumably an index linked annuity is available at retirement and does the scheme have a history of special bonuses too from the trustees for the members as well?

          Reply No, there is no indexed annuity. It is a final salary pension scheme like many other public sector schemes, only with contributions.

          • Hope
            Posted April 5, 2014 at 9:19 pm | Permalink

            JR, this over generous pension is for a part- time job where MPs do not have to attend that often. The number of politicians is second only to the China and over half the laws are created in Brussels! Over paid, too many expenses and an undeserving pension for part time work.

            Reply I agree there are too many MPs, and have supported moves to make us more productive, which Labour and the Lib Dems have prevented this Parliament.

      • Hope
        Posted April 5, 2014 at 3:07 pm | Permalink

        Self-regulation is still very much in place as the facts from this case show. If the MPs do no like the commissioner’s view they change it, they do not refer to the police and are a law unto themselves. After all Cameron’s bold statements following the expense scandal, the heart of the issue is: can you trust Cameron to turn his words into action? His record shows him to be a failure.

        He has failed on key economic pledges ie spending cuts/ tax rises which were the central plank of his campaign, failed on immigration, failed on quangos, although this might be due to the fact they have delegated powers and can act on EU directives without him getting the blame. However he still gives a lot of jam tomorrow promises and treats the public with arrogant contempt.

        JR, could you tell us where the government is on tax rises against spending cuts. Also how much of our tax could be saved instead of borrowing and giving away for useless overseas aid, EU and energy policy please. Perhaps this could help our understanding how factual Cameron’s claim is that he will cut taxes whenver he can. I think the facts show from the last four years the public cannot trust or believe a word he says.

        Reply I did set out the figures on tax/spending prior to the budget. If you take a non Treasury/economist view all the deficit reduction so far has come from tax revenue increases, as total spending has gone up in cash terms. If you use the government’s real terms figures as a proportion of GDP then they plan to get to 80/20 by the end of the deficit reduction programme next Parliament. They have now completed their series of real rises in Overseas Aid and have reached 0.7% of GDP as planned.

        • Hope
          Posted April 5, 2014 at 9:26 pm | Permalink

          Next parliament? The Tories will not be in government. So Cameron’s claim of cutting taxes when ever possible is a work of fiction as he said the structural deficit would be balanced by the end of this parliament and that was on his 80/20 split, from what you say any reduction has occurred through tax increases.

          Reply That logic makes the whole of UKIP’s, Lib Dem’s and Green’s manifestoes “works of fiction.”. I think the Conservatives can win the election, and if they do they will cut taxes.

  8. David Murfin
    Posted April 5, 2014 at 9:16 am | Permalink

    Le Chatelier’s Principle in action. We need more scientist’s in government.

    • Lifelogic
      Posted April 5, 2014 at 2:24 pm | Permalink

      Indeed but not like the ones they take on as chief scientists or ones from the met office. Einstein, Lindzen, Freeman Dyson types please.

      • lifelogic
        Posted April 5, 2014 at 8:23 pm | Permalink

        Certainly we need no more lawyers. PPE grads or bent salesmen or politics of envy merchants we have more than enough in politics already.

  9. ian wragg
    Posted April 5, 2014 at 9:27 am | Permalink

    Both the Treasury and the OBR are useless at predictions. Sticking a pin in a donkeys tail would be as accurate.
    When you have penal rates of tax as we do then of course you are going to avoid paying if possible.
    Please tell me why I should pay 20% VAT on having my kitchen floor tiled? Only a fool would pay these unjustified levies especially when they go to finance the EUssr and foreign despots. Please no rants about skoolsanospitals.

    • bigneil
      Posted April 5, 2014 at 4:17 pm | Permalink

      Think of (words left out ed) “never have/never will work” East Europeans who have come here to freeload a house, money, healthcare (and schooling etc ed). How will they live warmly and comfortably, watching their English slaves going to work to earn their free lives for them? The program on ch5 next Friday at 9pm will show what we are handing out freely to people who don’t contribute – whereas I still get NOTHING after contributing 45 years. And by the way john – you’re workmate IDS still hasn’t bothered to answer. Why are foreign non contributory (migrants ed) classed as worth more than someone who has paid thousands in ?

  10. Leslie Singleton
    Posted April 5, 2014 at 9:35 am | Permalink

    Dear John, I agree with you on how to maximize tax revenues; but, as I have said before, I do not believe that the solution is “proved”. I would have thought that other countries, especially in the Anglosphere, would have relevant stories to tell in this matter but one never sees, or at least I don’t, any evidence along those lines. Additional evidence from abroad is likely to be sparse at best and so unlikely to provide “proof” (Recession analysis–all details of which I have forgotten–or somesuch??) but it might be an aid to better judgement and facing down the daft howls from the Left about “helping the rich”. People talking about not selling because of the CGT is a commonplace–when talking about the weather has run out.

  11. Posted April 5, 2014 at 9:35 am | Permalink

    This is the perfect example of how hiking tax rates is counterproductive.

    I made this point in a post here just the other day.

    I would dearly like to raise some capital by selling some property but the punitive rate of CGT and the absence of taper relief means that I am forced to hang on to them.

    This means the government gets no revenue from us and also prevents the money being re-invested in the economy and contributing towards growth.

    We have owned the properties for more than 15 years and, with mortgages on them, my children would actually be better off inheriting the properties and paying 40% inheritance tax than if my wife and I sold them, paid the CGT and left them the cash !

    We need to return to a situation where there is a lower rate of CGT and taper relief to encourage people to invest for the long term.

    At present, with a high rate of 28% and no taper relief, it encourages the culture of making a quick buck. Surely this is not what we want ?

    • lifelogic
      Posted April 5, 2014 at 8:26 pm | Permalink

      You can roll over into EIS or move overseas if you are quick I understand.

      • Chris S
        Posted April 6, 2014 at 5:48 pm | Permalink

        Neither option is suitable for us. We would like to realise some capital to pay off mortgages on other properties.

        With CGT at 28%, it makes sense to increase mortgages as a means of realising capital. After all, mortgage interest on investment properties is tax deductable .

        As Atlas says below, the real evil was the removal of taper relief which means that you are taxed on inflationary gains. 

  12. Atlas
    Posted April 5, 2014 at 9:49 am | Permalink

    It is the removal of Inflation indexation that I see as being the real evil.

    • Leslie Singleton
      Posted April 5, 2014 at 12:18 pm | Permalink

      Atlas–Agreed–In my day, the consensus was that CGT was complicated but fair: Heaven alone knows why it was changed

      • stred
        Posted April 6, 2014 at 6:40 am | Permalink

        It was easy to calculate CGT as worked by Nigel Lawson. There was a table of inflation percentage reductions related to the years of purchase and sale. These figures were subtracted and multiplied by the gain. Anyone with GCSE in arithmetic could do it in 5 minutes. Gordon Brown and his Treasury advisors thought otherwise. Of course, it didn’t affect his friends in the City with their share options and bonuses, which were traded in short time.

  13. oldtimer
    Posted April 5, 2014 at 9:53 am | Permalink

    This outcome (of a lower tax yield) is to be expected as you clearly show. When the increase from 18% to 28% CGT rate was announced, I know of some fund managers who sold their entire personal holdings (including shares in the businesses where they worked) ahead of the new tax. This proved to be a smart move for them – but hardly in keeping with the sound idea that people working in a business should have a stake in it.

    The problem with the 28% rate is that the longer you hold shares the worse off you are because of the ravages of inflation. On the one hand politicians complain about short termism but on the other they punish long termism through the CGT rate. But talking out of both sides of the mouth (often at the same time) is to be expected from the political class if not an actual qualification for membership of it.

  14. Tad Davison
    Posted April 5, 2014 at 9:54 am | Permalink

    John,

    For me, your last line was the most telling, ‘The Treasury needs to improve its model to forecast this tax more accurately.’

    Why are there still people in the Treasury who continue to make these mistakes and use inefficient models?

    Surely they known that the biggest problem currently facing this nation is its massive debt and that it needs to be reduced rather than merely tinkered with. Tax policy must be backed up with sense and reason, not pushed by ideology as used to happen in the past. If a thing works, use it. If it doesn’t work, don’t. Can you tell us precisely who is responsible for the implementation of inefficient tax regimes, so that we might get rid of them?

    Tad Davison

    Cambridge

  15. Posted April 5, 2014 at 10:21 am | Permalink

    John, you have been consistently proved right about predicting lower tax yields on higher rates and vice versa.

    So why does the Treasury or OBR get it so wrong?

    Question: are the errors due to politicisation (socialist infiltration?) of our civil service, or down to mere incompetence?

  16. Mike Wilson
    Posted April 5, 2014 at 10:23 am | Permalink

    Mr. Redwood – I would say that on many subjects you are both knowledgeable and talk common sense. I think that you have integrity too. As such, I am quite happy that you are a member of our parliament.

    I just wish you weren’t a member of the Conservative party. I do wish you would resign from the Conservative party and stand as an independent. Your record as an MP would mean that you would still comfortably get elected – even against, or particularly against, an official Tory candidate.

    I can’t see any benefit to you from your membership of the Conservative party. You are not likely to reach high office again. As an independent, on those areas where you disagree with the leadership, your criticism would carry much more weight. As it is you and others are characterised simply as ‘troublesome back benchers’. I think your record means you deserve more respect than that.

    Reply I have more influence working with Conservative colleagues inside the party than railing from without. An independent MP has no-one to second his proposals.

    • Tad Davison
      Posted April 5, 2014 at 12:09 pm | Permalink

      Reply to reply:

      Be careful the pro-EU people don’t use that argument against you in order to justify staying in the EU.

      Tad

    • Mike Wilson
      Posted April 5, 2014 at 12:34 pm | Permalink

      Reply to reply: I can’t see any evidence of you, and like minded colleagues, having any influence whatsoever on policy.

      The best thing that could happen to our parliament is 50 independent (sane) MPs who hold the balance of power.

      Reply – veto of Fiscal Treaty, lower EU budget, referendum for 2017 etc

      • ian wragg
        Posted April 5, 2014 at 4:10 pm | Permalink

        Reply to reply.

        1. What fiscal treaty. The EZ carried on regardless and Cameron got nowt in return.
        2.Lower EU budget. Smoke and mirrors. Deficits being made up by further contributions and chronic overspend continues.
        3. I will ask you later after cast iron who will not be in Parliament after 2015 as he is willingly trying to lose the next election.

    • Kenneth R Moore
      Posted April 5, 2014 at 3:12 pm | Permalink

      Professor Redwood,

      How easy is it to ‘influence’ colleauges when the Conservative leadership is so lacking in integrity that it denies more senior jobs or even forces deselection of Mp’s if it doesn’t get it’s own way ?. Are there any other ways that the whips and senior party members can make an Mp’s life difficult?.

      I think it would make a really interesting article if you could explain what a three line whip is for example ..and explain why such tactics are needed as i feel it is something that is mysterious to many readers. What other means do party’s use to maintain ‘discipline’ ie putting the wishes of the party before electors or so it seems.

      Your seniority and high profile must lend you some protection from ‘back stabbing’ ? …but i do often wonder how much you have to censor your own opinions so as not to annoy the leadership too much and thus stay within the party ?

      Perhaps Mr Grep Knight’s decisions to take such a tough pro EU stance in the voting lobby is connected in some way to his appointment to several high profile committees (ie toadying).

      Reply A 3 line whip is a requirement for the party’s MPs to attend and vote for the government position. Governments traditionally impose these on important business matters, as they need to know they can carry their business to be able to govern. MPs who wish to abstain or vote against a 3 line whip are expected to notify the whips of their plan so the government has some idea of the numbers, and so Ministers can have words with potential rebels to try to persuade them otherwise. MPs can and do vote against their party on 3 line whips. This has been particularly common in this Parliament, as many Conservative MPs have not agreed with the proposals a Coalition government has wanted them to vote for. It has been such backbench pressure which has led to big changes of policy on Syria, Lords reform, the EU budget and the EU referendum.

      • Kenneth R Moore
        Posted April 6, 2014 at 10:24 pm | Permalink

        Thanks Mr Redwood for your most interesting reply,

        I wonder what would happen to an Mp that failed to notify the whip of their intention to vote against the government position ?. Why don’t more rebels keep their intentions private and send a signal to the PM that they wont be bullied ?.

        If you or another Mp has made up his mind, what can a minister possibly add in the privacy of their office?. One can only assume that threats or other strong arm tactics are made that would make a third world dictator blush. Perhaps Mr Cameron is copying ‘the master’ Anthony Blair in this respect with his intolerance of those with an opposing view.

        I find your comment that ‘Ministers can have words with potential rebels to try to persuade them otherwise’ rather sinister.
        It must be most frustrating to convince a colleague of the merits of your position only to have the ‘minister’ in charge persuade them otherwise at the last minute .

        I don’t think it’s unreasonable to expect an Mp to know thie own mind – either pro or anti EU, for a war in Syria or against. Perhaps this is why the country is overwhelmingly Euro-sceptic and parliament is the very opposite.
        We need lions to lead us now not Cameron sheep.

    • margaret brandreth-j
      Posted April 5, 2014 at 5:11 pm | Permalink

      Why isn’t John likely to reach high office again. Do I detect ageism?

      • Jagman 84
        Posted April 5, 2014 at 9:30 pm | Permalink

        No Margaret, he is an endangered species. A real Conservative! Unlike his party leader.

  17. Stu Saint
    Posted April 5, 2014 at 10:31 am | Permalink

    Apart from feeding the ever hungry, tax addicted government machine what is the point of CGT apart from a socialist need to punish wealth?

    Never mind the rates, question the whole point of CGT, Inheritance Tax etc.

    • Mike Wilson
      Posted April 5, 2014 at 12:37 pm | Permalink

      You earn a pound taxable at the basic rate. You pay 20% tax and 12% NI on it. You get 68p. You spend the 68p on something that costs 57p + VAT. So, from that pound which you have earned and spent – you have given the government 43%.

      That is the reality of our taxation system.

      If you spend that money on petrol …

      • Jennifer A
        Posted April 5, 2014 at 4:10 pm | Permalink

        I say the less tax collected the better.

        What good does this ‘wealth’ do the average worker.

        The higher rate payers can eff off. They’re the ones demanding mass immigration anyway.

        The money only encourages our tin pot leaders to get involved in wars which don’t concern them. And then they undermine their own people with the open-for-all-comers welfare/healthcare/education system whilst telling us that it’s all the fault of the EU.

        All we get is some vague promise of a referendum in three years time.

        It is clear that Mr Cameron is out of touch with the feeling of urgency and unease in the country.

  18. acorn
    Posted April 5, 2014 at 11:03 am | Permalink

    You are forgetting all the little people with their tax wrapped investment bonds. They don’t have a choice of deciding which tax year to liquidate their stash and cause a “Chargeable Event Taxation” situation.

    Only man can make his life this complicated with even less people understanding CGT since April 2010. The following is for pro’s so don’t try any of it at home but this company does quote realistic situations that us little people have to try and survive.

    I assume that none of these rules apply in the Palace of Westminster where capital gains are taxable at massive discounts, if financed by the taxpayer. Try the worked examples:-

    http://www.legalandgeneral.com/library/investments/taxation-and-trusts/Bond_Essentials_Top_slicing_adjusted_net_income_and_the_additional_rate_of_tax.pdf . AND. http://www.legalandgeneral.com/library/technical-centre/taxation-and-trusts/Intro-chargeable-events-taxation.pdf .

    Reply MPs face the same CGT law and tax rules as everyone else.

    • stred
      Posted April 6, 2014 at 6:44 am | Permalink

      Even when flipping the second house? Is this not what Mrs Millar did?

      Reply Mrs Miller can only have one main house for CGT purposes and will pay tax on any other, if she made gains on more than home she owned. I thought she rented the other place, but I have not checked all the detail. CGT designation is not necessarily the same as expense rules, and she will have to conform with CGT law like everyone else.

  19. Posted April 5, 2014 at 11:05 am | Permalink

    When building their computer models, the Treasury has clearly never heard of “GIGO”, “Garbage In, Garbage Out”. Many computer models fail because the designers have overlooked some aspect, most frequently the human reaction to what they are doing. Models simply can’t predict when the “last straw that breaks the camels back” is going to occur because no two camels are the same!
    Human reaction is far more complex with no two people reacting in exactly the same way, but certainly if one can put off selling a taxable asset without incurring undue expense, many people will do so in the hope that the tax rate might come down. The Treasury need to put far more work into their models and produce ones that are free from politicians’ assumptions and beliefs.

    • alan jutson
      Posted April 5, 2014 at 3:04 pm | Permalink

      EP

      I agree entirely with your point, and have made the same thoughts public before on this site a number of times.

      Politicians by and large simply do not seem to understand human nature.

      Likewise they sometimes do not think some people will cut off their nose to spite their face (when voting) on occasions, when and if they get hugely frustrated with some policies or inaction.

  20. Max Dunbar
    Posted April 5, 2014 at 11:06 am | Permalink

    Firstly, a capital gain usually means taking a risk. Secondly, to make a genuine gain it has to outstrip inflation but the CGT is charged on the depreciation as well as the real gain. Thirdly, there is resistance to handing ones money over to an administration that will misuse and waste ones hard won cash. Fourthly, we know that this tax like many others is used punitively rather than for practical revenue raising purposes as you clearly show.

    • forthurst
      Posted April 5, 2014 at 4:05 pm | Permalink

      “Firstly, a capital gain usually means taking a risk.”

      ..but not always. High frequency trading using front running techniques has enabled one bankster outfit on Wall Street to make a profit on every day for four years, bar one (flash crash?). Not if you can collude with a PM to dump our gold from the BoE vault in order to bale out banksters who had been caught short, or collude with a Business Secretary to allocate most of our Royal Mail shares to banksters and sell them cheaply. Financial crooks prefer to avoid risk; if they are in collective error, they collude with the PM to use taxpayers’ money to bale them out.

      • Max Dunbar
        Posted April 5, 2014 at 4:40 pm | Permalink

        That’s why I said ‘usually’.

  21. Martyn G
    Posted April 5, 2014 at 11:07 am | Permalink

    There are many taxes that cause anger, but to my mind one of the worst is the levy placed on everyone who takes out insurance, be it for a car, their property or life. Vehicle insurance is rightly a legal requirement but so far as other insurances go, robbing all those sensible and responsible enough to protect themselves against the risks of life via taxation is plainly wrong and in a fair world should and would be killed off…

  22. bluedog
    Posted April 5, 2014 at 11:22 am | Permalink

    Is it any wonder that the electorate has lost confidence in the political class?

    CGT is just a tax on inflation, and the government causes inflation deliberately through QE because it’s easier to inflate debt away than run a budget surplus and pay it down.

    Similarly, any claim that the minimum rate of income tax is 20% needs to be viewed in the context of VAT at 2o%. Minimum rate equals 40%.

    Anyway, the solution is obvious. Find a non-financial asset that generates a secure return and borrow every penny you can against it. Aligning your finances with those of HMG means you will never need to repay your debts. They will evanesce.

  23. Vanessa
    Posted April 5, 2014 at 11:58 am | Permalink

    Nick Clegg is just perpetuating the lies which the pro-EU side use as ammunition.

    If you read this blog a letter has been sent to the Press Complaints Commission alerting them to Open Europe’s Matt Persson who keeps writing on the “fax democracy” issue which is complete lies.
    http://autonomousmind.wordpress.com/2014/04/05/the-truth-that-mats-persson-and-open-europe-dont-want-you-to-know/ It needs to be corrected that out of the EU means MORE INFLUENCE and MORE CONTROL of the legislation which we obey.

  24. behindthefrogs
    Posted April 5, 2014 at 1:12 pm | Permalink

    People sitting on empty and little used property need to be taxed heavily in order to persuade them to release the much needed property onto the market. In London in particular this could help to reduce property prices. We thus need higher council tax on empty properties and second residences. This should be coupled with introducing higher council tax bands.

    We also need various other expenses like television licences moved into council tax to further increase the cost of ownership of under used property. This would also reduce the red tape and costs of chasing non-payers. Similarly the single occupancy reduction for council tax needs to be at afixed rate based on band C.

    • Max Dunbar
      Posted April 5, 2014 at 3:57 pm | Permalink

      Presume your concern is with accommodating all the young tadpoles that are hatching out at the moment. Will Toad Hall be affected by the new rules?

    • ian wragg
      Posted April 5, 2014 at 4:17 pm | Permalink

      Why do you defend the TV licence at all. It is equivalent of the poll tax and should be abolished.
      The pro EU, Fake green, climate mugs at the BBC should be made to earn their money through subscription and advertising (which they do covertly now).
      Why should people be taxed heavily to release any assets which they rightfully own. Soci@list drivel.

    • alan jutson
      Posted April 6, 2014 at 6:10 am | Permalink

      Behind The Frogs

      Ask yourself why they would want to hold onto an empty property, when they could rent it out, and gain an income.

      Is the property empty because planning has been applied extend or to renovate it, But Planning is taking its time.
      Is it waiting for change of use.
      Is it proving difficult to raise finance for improvements.
      Is the property awaiting probate from an owner who has passed away.
      Has the property been compulsory purchased for a new scheme, but that scheme has been delayed.

      There are many reasons for a property to be empty for a period of time, as you should know.
      Wokingham Council Compulsary purchased over 100 houses some 30 years ago for a new inner relief road, but then failed to build it.
      Some of those properties stood empty for years before eventually being sold, mainly at Auction..

      Things are not always as they seem.

  25. stred
    Posted April 5, 2014 at 3:03 pm | Permalink

    Sorry- off subject. Yesterday you mentioned the EU banking regulations. We are having difficulty conveying a house which was sold before Christmas, vacant and with first time buyers eager to buy as seen. Both parties are getting very frustrated about continued questions being raised by solicitors about gas service, electrical, window and conservatory guarantees and regulation approval. The boiler was new and did not need servicing, the electrical system has not been rewired and is sold as seeen, the pvc double glazing was put in before FENSA existed and building regulations covered windows or E gass required, and the conservatory did not and still does not require planning permission or building regulation approval. It is 15 years old.

    Despite this and all the answers and delays for almost 4 months our solicitor now tells us that we must buy certificates of indemnity from private companies which take the place of the new certificates provided by registered trades, at considerable cost. Our solicitor has a regular company which would cost us over £200. This is all because the buyer’s bank will not give a mortgage without them. They are, as far as both parties can see, completely useles bits of paper, printed without even a site visit and issued by companies which can go bankrupt, certifying than an old component will meet modern standards.

    Are these new regulation from a clueless EU commissioner or have they been dreampt up by some idiot in Whitehall?

    Reply The Energy Report is an EU requirement, the one part of the Home Information Pack the Coalition government could not abolish.

    • alan jutson
      Posted April 6, 2014 at 6:19 am | Permalink

      Stred

      I would simply send whoever is requesting this information copies of the relevent invoices to prove work was completed before such regulations existed.

      It is not usually the lender who requests this info, but the purchasers solicitor who usually knows nothing, but is trying to cover his backside “just in case”

      All that you outline are regulations which were passed by our Parliament with the exception of the energy report, which could have simply been satisfied with a utility bill.

      • stred
        Posted April 6, 2014 at 7:18 pm | Permalink

        Thanks. Unfortunately, we are told that these indemnity certificates are now the norm. The buyer has offered to pay for them and we have found some cheaper quotes. They just send out useless bits of paper and the lender is happy. There was a possibility that we would have to pay the LA to confirm that no permission was necessary, ie permitted development and exempt regs. Everyone seems to know what the law is except the banks and lawyers.

    • stred
      Posted April 6, 2014 at 7:01 am | Permalink

      I am talking about new performance certificates normally provided by installers when they fit windows, doors, conservatories, boilers etc. These are now required in addition to the useless misleading EPCs. It has only been so recently when applying for a mortgage and we are told it is because of banking regulations.

  26. uanime5
    Posted April 6, 2014 at 5:37 pm | Permalink

    Indeed, it is coming in this year £1.2bn down on last year’s forecast, or a whopping 23% shortfall. Just as they underestimate the extra revenue you get in from Income Tax rate cuts, so they exaggerate the extra revenue you get from tax rises.

    It’s almost like people avoided the increase in CGT by selling their assets before it increased, just like they deferred their income until the 50% tax rate fell to 45%. However this trick only works once so we can expect CGT revenues to increase in 2015, while income tax revenues will decrease.

    People with assets have considerable scope to delay or cancel sales if the prospective tax bill is too high.

    Something that many people can’t do indefinitely, especially if they can’t afford the council tax on the flats they’re not using. They may also decide to sell while taxes are high if they believe that the tax bill will only get higher.

    Reply The 28% rate came in more than a year ago!

    • Edward2
      Posted April 6, 2014 at 6:25 pm | Permalink

      Uni
      Its a shame you just cannot bring yourself to look at the figures and simply accept them for what they are.
      Reduced rates have resulted in greater revenues.
      Don’t be so blinded by the prejudices of your political beliefs.

  • About John Redwood

    John Redwood has been the Member of Parliament for Wokingham since 1987. First attending Kent College, Canterbury, he graduated from Magdalen College, and has a DPhil from All Souls, Oxford. A businessman by background, he has been a director of NM Rothschild merchant bank and chairman of a quoted industrial PLC.
    Published and promoted by Thomas Puddy for John Redwood, both of 30 Rose Street Wokingham RG40 1XU
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