CGT revenues fell for two years after they put the rate up – there’s a surprise!

From July 2010 the Capital Gains Tax rate rose from a sensible 18% under the Labour government to an uncompetitive 28%. Presumably the idea was to collect more revenue from it. Even the Treasury, however, expected a dip in the first full year after its implementation (2012-13, as CGT is paid the year after the gains on which it is calculated). They then expected revenues to pick up.

In the 2013 Budget the Treasury gave new forecasts, where they accepted that CGT revenues would be lower in 2012-13 at £3.9bn but would bounce up to £5.1bn the following year. By the time of Budget 2014 they had to revise the figures again. This time they forecast revenues lower in both 2012-13 and 2013-14 at £3.9bn in each year, £400 m down on the £4.3bn collected in 2011-12. A massive £1.2 bn of forecast revenue had gone missing, despite the economy growing faster than they expected. Clearly the taxpayer has lost out so far from the increase in the rate of CGT. If it had stayed at 18% 2011-12 might have come in a bit lower, as there would have been no need for some to pre-empt the higher rate in the week or two of rumours that preceded the imposition in June 2010. The following two years would doubtless have seen considerably more revenue than the Treasury will receive at the higher rate.

CGT is the most easily avoidable tax. Many individuals and companies simply refuse to sell assets which are sitting on large gains, even though they would rather switch them into something more useful for their current needs. Rich individuals who have power to switch the domicile of themselves or their assets find it more worthwhile to do so if they are thinking of selling something at a good profit. Individuals with losses as well as gains make sure they take offsetting losses when rejigging their investments. High rates of CGT are probably stopping people selling second homes in London, even though they may not need them any more, helping to fuel the boom.

I remember making the case against a higher rate of CGT at the time of the 2010 budget. The Lib Dems wanted a 40% rate, I wanted to keep Labour’s rate, and we ended up with a compromise. It’s more proof that the Treasury do not have a good model of tax receipts. Just as they under estimate rising revenues when rates are cut, so in this case they have grossly overestimated the gains so far from a higher CGT rate.

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90 Comments

  1. Mike Stallard
    Posted May 13, 2014 at 5:55 am | Permalink

    It seems to me that if you pluck the goose too hard, it runs away.

    • Lifelogic
      Posted May 13, 2014 at 9:13 am | Permalink

      Runs away, sees a tax expert, does cash in hand, or just works less hard.

  2. Lifelogic
    Posted May 13, 2014 at 6:06 am | Permalink

    Indeed and it is rather worse than you state. This as high CGT rates not only reduce CGT receipts but substantially reduce other tax receipts, especially stamp duty as properties and assets do not then change hands, vat on agents and legal fees, corporation tax, income tax and others too. It also encourages businesses and people to hold the wrong assets for their business/investment/personal needs making the country much less efficient.

    You do need inflation indexation too as otherwise you can be taxing gains that are not even real. A gain of just inflation over many years is thus taxed hugely often to make it into an actual large real loss. Where a quick large gain is taxed at a lower true rate in real terms. You also need more flexible roll over reliefs so that tax does not encourage companies to do things purely for tax reasons. Thing that are bad for jobs and growth. 18% after inflation is surely about right.

    But why are the Treasury forecasters completely hopeless? Do they use similar duff software to the global warming alarmists? Or is it that they always want to be optimistic on revenues in order to reassure the people lending billions to the UK. Or is it that they are institutionally lefty and watch too much silly propaganda on the BBC? The keeping of the 50% rates by Cameron was hugely damaging and totally immoral costing people jobs, pushing people overseas and cutting UK growth. All done for pathetic political appearance reasons.

    Tax needs to be neutral between different way of doing things. Be it buying or renting a property, insuring or paying for things as you go etc. So many artificial industries are just
    exploiting a non neutral tax system.

    It is inevitable that if you tax people less in the short terms they will have more money to spend & invest, they do this far better than governments so the government later gets more tax revenue from this increased spending and investing and its real return.

    If the government take it they just piss it away on HS2, silly green subsidies, over paid incompetent treasury forecasters, global warming exaggerators, equality “experts” and the likes.

    Of course the deficit is only deferred tax in the end so what is actually needed is reduced spending and waste. This is very easy to do as about half of what government does is pointless or often worse severely damaging and the other half is so hugely inefficient and anyway figure show the staff are 50% over paid with pensions included, relative to the private sector.

    Fire half and put pay in line with the private sector and you save a fortune and release many people to do real and productive jobs instead. Then reduce tax rates and yet more people in the private sector start doing real jobs instead of trying to work round silly tax rates and laws.

    Sort out the poor, slow, random, mutilevel and expensive legal system and you release even more for real & productive work. Cut subsidies for silly things like green crap, trains and electric cars and even more are released. Win, win, win but alas we have Cameron.

    Has he lined up a one legged, lefty, green crap believing, pro EU heart and soul, token woman of colour, with an exotic religion, and learning difficulties to head up the BBC trustees yet?

  3. Lifelogic
    Posted May 13, 2014 at 6:36 am | Permalink

    Why do we end up with a compromise, because Cameron threw away the last sitting duck election with his EU ratting, green crap, big state, high tax, fake equality agenda and putting Clegg on TV on an equal basis.

  4. Narrow shoulders
    Posted May 13, 2014 at 6:44 am | Permalink

    I would suggest that the exclusion of a taper on gains on the asset is as contributory to the lower take as the wealthy hold onto or transfer assets as the overall rate.

    Why pay tax on inflation?

    However the treasury will always be able to dip into the pool of higher rate PAYE slave again in the next budget to make up the shortfall. #shootingfishinabarrell

  5. alan jutson,
    Posted May 13, 2014 at 6:57 am | Permalink

    Its not just the higher rate that is causing the problem John, it the fact that their is no indexing allowance (old taper relief).

    No surprise at all that people are simply waiting for the rates and rules to change if they do not have to sell investments to release money for something else or indeed another investment that will be taxed in exactly the same way.

    Having been dealing with the taxman at length recently on a very simple problem, and having seen the delay and errors at first hand, I do wonder how accurate all these figure are that they present to the government.

    Does anyone check them ?

  6. Richard1
    Posted May 13, 2014 at 6:58 am | Permalink

    Do we have a leftist available to deny the Laffer curve despite this overwhelming evidence for the Laffer effect? Lets remember also that stock markets and large parts of the property market have been booming during this time. Its time for leftist denial to stop and for a clear consensus that lower tax rates means higher revenues. The left should admit that they only want high tax rates to stoke the politics of envy, and they would be happy to pay the heavy economic cost for this.

    People should think about this when advocating M. pikkety’s nonsense.

    • Lifelogic
      Posted May 13, 2014 at 9:16 am | Permalink

      Indeed the BBC do seem to like M. Pikkety’s nonsense.

      Who needs a wealth tax IHT, income tax, cgt and the rest can easily grab 90% of your wealth anyway!

    • Tad Davison
      Posted May 13, 2014 at 11:04 am | Permalink

      You beat me to it Richard!

      Tad

      • Hope
        Posted May 13, 2014 at 2:59 pm | Permalink

        Hang on a moment, the left are not alone. JR has pointed out that the deficit is being reduced by tax increases instead of spending cuts. With over 300 tax rises the Tories are the New Labour and Miliband Old Labour. The in-work benefits and tax credits to imported cheap labour need to be paid somehow. Cameron is all for it in his last interview. Let us not pretend this is a lefty issue only, we are taxed to the hilt because of Cameron’ inability to stop spending. And he wants us to be proud that he wastes money on overseas aid projects like girl bands in Ethiopia or water parks in Morroco, dictator in Belurus and has no say what the EU spends a sixth of the UK overseas aid money on. The UK is supporting space age programmes to India, aid to nations that are nuclear powers when the UK cannot put aricraft on its aircraft carriers- are you not proud?

        • Tad Davison
          Posted May 13, 2014 at 5:46 pm | Permalink

          Hope,

          You make many interesting points. It’s a pity there are so many Lefties in the Tory party.

          Tad

        • Richard1
          Posted May 13, 2014 at 6:56 pm | Permalink

          Yes but we are frequently reminded on this site of the failure of higher rates not yield higher revenues. CGT is one example, the 50p IT rate is another. Only the VAT increase has ‘worked’, because its so much more difficult to avoid. I agree spending should have been cut faster.

        • Jennifer A
          Posted May 13, 2014 at 7:23 pm | Permalink

          Hope,

          It really isn’t about the revenues raised but how badly the money is spent.

    • waramess
      Posted May 13, 2014 at 4:26 pm | Permalink

      I think Laffer was not entirely understood by all. The curve was no more than common sense: the higher the tax, progressively the greater the incentive for different sectors of the economy to avoid it, until eventually everyone will avoid it.

      I think even socialists can understand that. The problem is knowing at what point sufficient people deciding to avoid it will result in a lower tax receipt. It would seem George has just resolved the issue so far as CGT is concerned

      • Lifelogic
        Posted May 13, 2014 at 6:17 pm | Permalink

        You say “I think even socialists can understand that” – well perhaps they could – but socialists are simply not interested in understanding at all. They work rather like religious leaders and the greens working with raw moronic emotion, fear, envy, the buying of votes from certain “sections” and a general hatred of anyone better off, cleverer, prettier, has a bigger house or is more hard working than themselves.

      • Richard1
        Posted May 13, 2014 at 6:59 pm | Permalink

        Sure – rates of 0% yield no revenue. But all rates used in recent decades for inc tax and CGT show the laffer effect when cut.

        We are way above revenue maximizing rates. The calculations of the left – and the treasury – never include the extra incentive for work and investment of lower rates.

        • Lifelogic
          Posted May 14, 2014 at 8:42 am | Permalink

          Well rate of 0% can yield more in other taxes. For example if we have 0% corporation tax we would have more employees in work, faster and stronger growing companies and thus have more income tax, NI, stamp duty as the staff or shareholders buy more houses, more CGT, more vat …….

    • uanime5
      Posted May 13, 2014 at 10:22 pm | Permalink

      Do we have a leftist available to deny the Laffer curve despite this overwhelming evidence for the Laffer effect?

      Well since no other factors have been considered there’s no evidence that the decrease in CGT revenues is solely due to a tax increase. It’s entirely possible that people aren’t selling their assets simply because they believe that these assets will be worth more money after the economy has been growing for a few years.

      Also there hasn’t been a huge increase in corporation tax despite years of cutting it, so I guess this is evidence that the Laffer Curve doesn’t work.

      Lets remember also that stock markets and large parts of the property market have been booming during this time.

      So people have been reluctant to sell their shares and properties at a time when these assets have been increasing in value. Could it be that they’re waiting for their value to peak before selling them.

      Its time for leftist denial to stop and for a clear consensus that lower tax rates means higher revenues.

      Let me know when you have evidence to support this claim. Specifically evidence when you examine all relevant factors, rather than simply pointing to a tax increase or decrease that supports your ideology.

      The left should admit that they only want high tax rates to stoke the politics of envy, and they would be happy to pay the heavy economic cost for this.

      Actually it’s because those with the broadest shoulders should bear the most burden. Especially when they’ve only gotten so rich be keeping salaries low for everyone else.

      Also what economic cost is there from making the wealthy pay a higher rate of tax and why haven’t these problems occurred in Germany where taxes on the wealthy are higher than the UK.

      • Richard1
        Posted May 14, 2014 at 1:14 pm | Permalink

        Yes we do have such a leftist, the evidence makes no impression on the left. Among the many absurdities in your answer above is the old leftist canard that the rich are only rich because the poor are poor. The evidence suggests the opposite is true. Some people have got very much richer these last 35 years of globalization and international trade. But 3 bn people have been lifted out of poverty and whole populations are far more prosperous than they were, except of course in those countries such as North Korea, Venezuela and Zimbabwe where socialism has been retained.

    • acorn
      Posted May 14, 2014 at 6:56 pm | Permalink

      There is no Laffer curve, it doesn’t exist. There is no Ricardian Equivalence either, it is a myth. While we are at it, a Flat Tax system doesn’t work either, nine out of ten UK taxpayers would lose under such a system in the UK. The Conservatives found that out when they were in opposition; they dropped the idea.

      JR spends most posts slagging off other EU States, but they tend to be much smarter than the UK when it comes to taxation. The UK tax structure has been refined to favour the rich. Tolley’s Tax guide is now over 11,000 pages long. It describes more designed in (by politicians) loopholes, than you can shake a stick at. Hence we have 104 billionaires supposedly resident in the UK, more per capita than any other State. Some still prefer to hang out for “other reasons” in our UK owned Tax havens like the BVI.

      In the last decade, the vast majority of the UK’s gross national income (note: not GDP, there is a difference) has gone to “capital” not to “labour”. Hence the wealth accumulation of the top o.1% has expanded enormously. The UK political class turn a blind eye to this fact; they all hope to be invited into the elite 1% if not the 0.1% in the near future. The French have a wealth tax. If you want to be resident, and tax resident in France, you are subject to it, regardless of where your wealth is stashed.

      To cut a long story short, if the transnational capitalists are ever to pay a rate of tax that the little people would consider appropriate, then a wealth tax is the only way to do it. Starting at about a million $US, a rate of 0.5% per annum, going up to about 1.5%, maybe more, per annum, for a billion $US. Payable on a daily basis in whichever country the person was resident in any year. There would be no other “capital” taxes. No CGT, no IHT, no Estate taxes etc.

      • Edward2
        Posted May 15, 2014 at 2:04 pm | Permalink

        acorn
        The Laffer curve plainly does exist because it is a published piece of work by a well known economist. I presume what you mean is you don’t agree with the idea that there is a rate of tax which is likely to bring in the most amount of revenue.
        This seems sensible to me as it is virtually the same logic which is accepted in the areas such as product pricing, supply and demand etc.

        If you think the EU nations have simple tax laws. then you have not looked at France or Italy as just two examples of EU nation’s equally dense and complex tax systems.

        The problem with wealth taxes is that first you have to calculate someones overall wealth each year which if you look at the problems in the area of probate can take more than a year to calculate
        And secondly the wealthy person then has to find cash to pay the tax when most people’s wealth is held in illiquid assets like investments in businesses or freehold property.
        At least with income and capital gains taxation there is some cash that can be diverted to pay the tax.

        I wonder if the headline statistic about increased inequality has actually been caused by the millions of recent new arrivals from poor countries and at the same time some very wealthy billionaires are coming here from China, Russia, Middle East and France etc.
        These two things must have radically skewed the figures.

  7. margaret brandreth-j
    Posted May 13, 2014 at 7:03 am | Permalink

    You would think that people with enough money to have such large gains in capital , would not bother about a couple of percent difference , especially if they could invest that money into something more lucrative, however there are other factors I suppose . To be in business one has to have time to devote , to dabble in it leads to disaster and those with individual assets e.g second homes would probably have less time to scrutinize the possibilities and therefore safely leave it as it is. Forty percent though sounds outrageous. For many it has been a lifetimes work trying to create capital to be reused,; it s a hard life building and building against all the obstacles . It is physically and emotionally exhausting. Those who are super rich and living off the hard work of their predecessors appear to take it for granted. We have seen it in the new rich’s playground , the rich kids who pose , take drugs and are generally silly with their parents assets. These are the kind of situations which aggravate and tend to make the other half agree with high rates of CGT.

    • Jennifer A
      Posted May 13, 2014 at 7:29 pm | Permalink

      40% on 40%, Margaret.

      To become a homeowner these days will require a graduate to repay student loans and (likely) £3000 per year car insurance. Just at the point he becomes eligible to take out a mortgage on a shabby 2bed – next to a welfare recipient who makes a lot of noise at night because she doesn’t have to get up the next day – he gets whopped for 40% tax on his wages.

      It stinks.

      • Jennifer A
        Posted May 13, 2014 at 7:32 pm | Permalink

        It isn’t just the rich who get stung for CGT in the end. Fairly modest estates do to on people who have been taxed at 40% from the point that they were on equally modest earnings.

  8. Brian Tomkinson
    Posted May 13, 2014 at 7:51 am | Permalink

    More good advice from you rejected by your leader. You may still not have realised it but he is happier listening to the LibDems than Conservatives such as you. He knows that, come what may, you will support your party and consequently he treats your views with contempt.

    Reply Conservative lobbying stopped a 40% CGT rate prefered by Lib dems

    • Brian Tomkinson
      Posted May 13, 2014 at 8:56 am | Permalink

      Reply to reply,
      Interesting; you seem to be saying that Cameron and Osborne would have happily implemented 40% to please their LibDem pals. After all, the minority LibDems couldn’t have done it.

      • Lifelogic
        Posted May 13, 2014 at 9:17 am | Permalink

        Cameron might well have. I would not be surprised if he promised a new rent act too he is such loopy lefty.

      • Tad Davison
        Posted May 13, 2014 at 11:11 am | Permalink

        Glad to see that others can smell something wrong the Tory leadership too Brian. I get more distant from the Tory party I once supported with each day that passes. I thought they’d be trying hard to win over people like me, but alas, they’re just as much a part of the overall problem as the other two Westminster parties. They’re missing the bigger picture.

        Tad

        • Jennifer A
          Posted May 13, 2014 at 7:35 pm | Permalink

          LibLabCon is now a firmly established part of the lexicon.

          Not for no reason.

          The cat is out of the bag.

    • Lifelogic
      Posted May 13, 2014 at 9:03 am | Permalink

      The Libdums are totally mad 40% cgt and without indexation! The Libdems are wrong on every substantive issue the green crap subsidies, the EU, the level of taxes, employment laws, the size or the state, HS2, electric cars, enforced equality ……. but then so is Cameron.

  9. Denis Cooper
    Posted May 13, 2014 at 8:11 am | Permalink

    Off-topic, JR, will the Tory party decide to desist from its long campaign against UKIP, now that UKIP has helped the Tories to get a slender lead over Labour in the opinion polls for the next general election?

    I can’t say anything about how the results in Lord Ashcroft’s poll have changed from the last time because there was no last time, this is the first of a set of polls he has started to conduct, but look at the changes in the Guardian/ICM poll:

    http://www.theguardian.com/politics/2014/may/12/support-labour-drops-tories-lead-guardian-icm-poll

    Labour is down 6% from last time, and where has that 6% of lost support gone?

    Well, the Tories are up 1%, and the LibDems are up 1%, but UKIP is up 4%; in fact the only two changes which have a reasonable statistical significance are:

    Labour support down 6%
    UKIP support up 4%

    The Tories have not actually done much to get their lead, as UKIP has done most of the work for them by pulling Labour down; so will the Tories now conclude that it would be in their interests to stand down that special unit set up to slag off UKIP?

    • Brian Tomkinson
      Posted May 13, 2014 at 8:43 am | Permalink

      Denis,
      You ask: ” so will the Tories now conclude that it would be in their interests to stand down that special unit set up to slag off UKIP?”
      After continually telling us ‘vote UKIP get Labour’, I don’t think so. Also their masters in Brussels wouldn’t approve.

      Reply I do not slag off UKIP, though I often allow UKIPers to be unpleasant about Conservatives on this site. The UKIP tendency here is ever ready to condemn any Conservative who makes a mistake or is censured by parliament, but entirely silent on the UKIP MEPs/Councillors who end up in prison, resign from their party or make mistakes of judgement.

      • Lifelogic
        Posted May 13, 2014 at 9:19 am | Permalink

        Well like all parties they clearly have their nutters, it seems they are drawn to politics like a moth to a flame.

      • Tad Davison
        Posted May 13, 2014 at 11:37 am | Permalink

        Reply to reply:

        Well you’ll get no favouritism from me! I try very hard to be true to my principles in an even-handed way and despise dishonesty or blatant attempts to stop people saying what they think.

        If someone breaks the law or comes out with drivel, I’ll condemn them, no matter who it is or from which party. The fact is however, the Westminster parties do have people trawling through the internet for anything that might discredit the UKIP leadership, however tiny and inconsequential the person who said it might be within the organisation.

        Let me tell you and everyone else quite clearly, and I swear before God himself I am telling the truth, I have heard quite high people in EVERY party say things that would see their resignation were it to get out!

        And that is the annoying part, hence my recent suggestion that those in glass houses shouldn’t throw stones. Those double-standards are part of the very thing that makes people sick to the back teeth with the present ruling political class, so I agree absolutely with Denis that these dirty tricks people should be stood down.

        Tad

        • margaret brandreth-j
          Posted May 13, 2014 at 5:24 pm | Permalink

          strongly agree.

        • Hope
          Posted May 13, 2014 at 6:28 pm | Permalink

          JR, not sure what you mean by your reply. But you certainly made disparaging remarks, your reply highlights the point. It was obvious the Tory party were going into electoral oblivion by the sleaze surrounding the Major government. Not policy. It was a matter of lack of trust on double standards, one rule for them another for the public. Nor did the party appear to care or act on public opinion. The Tory party has not learnt from its bitter experience in the worldiness.

          Cameron was an advisor at this time. The expense scandal saw Cameron making bold statements about what he would do if he was PM. He has utterly failed to deliver, and appears to condone ie having Laws back in cabinet or arrogantly thinking the public should move on if he tells them. He has continued with the one rule for them one rule for the public image ie Miller, Laws etc.

          The difference of course is that Cameron is now PM and should be acting on his words and forcing changes through. Right to recall of MPs another reason why he will not be trusted. He and your party has not learnt from experience yet he was quick to make disparaging remarks of other parties and his own supporters. He still does not get it.

          • Tad Davison
            Posted May 14, 2014 at 10:52 am | Permalink

            Absolutely! And it astonishes me why anybody should still fail to see how untrustworthy Cameron is, and makes excuses for him. It is astounding to hear him say he’s got a proven track record for delivering on a promise.

            Cameron has missed his vocation. He’d have been better as a stand-up comedian.

            Tad

        • Jennifer A
          Posted May 13, 2014 at 7:46 pm | Permalink

          Keep them coming, I say, Tad.

          The English have become so paranoid in their own country that they believe the anti UKIP conspiracists and see all the ‘evidence’ for smear around them. Especially spurious claims of racism.

          The disgraceful ganging up against Mr Farage on QT was obvious to all except those on the panel and David Dimbleby.

          Mr Redwood.

          Is there, that you know of, a conspiracy against the English or not ?

          I am now paranoid enough to believe that there is.

      • Brian Tomkinson
        Posted May 13, 2014 at 7:42 pm | Permalink

        Reply to reply,
        JR: “I often allow UKIPers to be unpleasant about Conservatives on this site”
        I see, everyone who writes something “unpleasant about Conservatives” is what you call a UKIPer. How do you know they are UKIPers? I’m sure than many Conservative, Labour and LibDem supporters also write critical comments about “Conservatives”.
        As for the second part of your reply, Tad Davison has very eloquently responded.
        Overall, your response illustrates that although you take exception to Denis using the words “slag off” you, in your normal mild-mannered way, have tried to do just that.

      • margaret brandreth-j
        Posted May 16, 2014 at 5:01 pm | Permalink

        John ,you are always very careful in what you write. You are sensitive, good hearted , yet stick to your own views . Off stage may be different , but here you are no other than a perfect gentleman.

    • Lifelogic
      Posted May 13, 2014 at 8:45 am | Permalink

      I tend to think the special unit, clearly trying brand them as “closet racist and fruitcakes” in Cameron’s idiotic words. This usually by quoting a few lines out of context and the absurd pathetic bias of the BBC interviewers and “comedy” programs are actually helping UKIP.

  10. Nick Reid
    Posted May 13, 2014 at 8:15 am | Permalink

    However stamp duty receipts have increased substantially since they were raised. So the argument that higher tax rates always lead to lower revenues isn’t always correct.

    Reply No it is not, and it is not one I have ever argued. It depends on the starting level of the tax and the nature of the tax. Increasing VAT rates clearly increases revenues. The issue with Stamp Duty is more difficult, as we need to ask how many more transactions there would be with a lower rate.

    • Lifelogic
      Posted May 13, 2014 at 8:58 am | Permalink

      Clearly higher tax rates do not always lead to lower revenues. There is a yield curve, it depends on the nature of the tax and the % level of the tax. There is an optimum rate for each tax for maximum revenue, somewhere between 0% and 100%. Though each tax also clearly affects other tax receipts as the tax payer no longer has the money to spend or invest. Also Osborne’s huge deficit is only deferred tax anyway.

      We should not be aiming for maximum tax take anyway, we should be aiming for taking enough tax to do only the things governments can do best. 20% of GDP is plenty. There is also the dead money in tax collection namely the cost of collecting, administering it, imprisoning tax evaders, threatening them, the software, accountants, tax experts, lawyers and the redistributing of it and the negative affect of taxes on peoples behaviour.

      These can easily be between 10% and even over 100% of the taxes raised depending on the tax. Many parking fines raise only just enough to pay for the signs, lines and the LEA muggers to tramp the streets and do there muggings.

      • Tad Davison
        Posted May 13, 2014 at 12:05 pm | Permalink

        ‘We should not be aiming for maximum tax take anyway, we should be aiming for taking enough tax to do only the things governments can do best. ‘

        Interesting point LL. What we are talking about here is breaking the psyche, that peculiar political mind-set that craves to spend other people’s money on whatever they can.

        Taxation is necessary to provide essential public services, which is patently obvious I know, but here’s an example of why we need to stop unfettered spending:

        Labour and the Lib Dems on Cambridge City council have deemed it necessary to take two-lane road traffic islands, even on the main ring road, and turn them into singe-lane ones which restricts traffic flow. Despite the substantial cost, and objections from the rate-payer and motorists alike, they went ahead anyway. The aforementioned just cannot wait to spend someone else’s money on things that don’t matter, and they’ll look for ever more inventive ways to get it.

        And when it causes gridlock, I wonder who’ll pay for the ‘improvements’ to be reversed?

        Perhaps we need to go the other way and ask of our politicians, is what you propose really necessary?

        I despair of them, I really do.

        Tad

        • Lifelogic
          Posted May 13, 2014 at 6:24 pm | Permalink

          When it causes huge gridlock they will say “Oh dear, look at this dreadful gridlock we must do something about this appalling congestion perhaps tax cars even more, fine them everywhere and do a hugely expensive white elephant HS2 type of tram scheme, some more box junction cameras or something similar”.

          • Tad Davison
            Posted May 14, 2014 at 11:12 am | Permalink

            You’re spot on again LL! I wonder how long it will be before they finally slaughter one of their biggest cash-cows?

            Those alterations I mention (because they can hardly be described as improvements) can only be an impediment to business, yet I am given to understand that was never factored into the cost because it was never envisaged that it would cause a problem. Yet even a child could understand that if one funnels two lanes of heavy traffic into just one lane, it will cause a bottleneck, and those locations are busy at the best of times.

            So it isn’t just the right of recall of MPs that is necessary, we need to be able to do it with councillors too. But as we know, Cameron again has failed to deliver.

            Tad

      • Bob
        Posted May 13, 2014 at 5:11 pm | Permalink

        @ lifelogic

        There is also the dead money in tax collection namely the cost of collecting, administering it, imprisoning tax evaders, threatening them, the software, accountants, tax experts, lawyers and the redistributing of it and the negative affect of taxes on peoples behaviour.

        Good point.

  11. oldtimer
    Posted May 13, 2014 at 8:44 am | Permalink

    It is just not the Treasury that does not have a clue about or comprehension of human motivations. It seems that the LibDems do not have a clue either. Attempts at social engineering through the tax system are usually doomed to failure because the law of unintended consequences will do the job. In this instance, as you point out, it has almost certainly help stultify the housing market, reduced capital market activity and left assets locked up when it were better they were freed up and put to better use.

    • Lifelogic
      Posted May 13, 2014 at 11:07 am | Permalink

      Indeed.

    • Iain Gill
      Posted May 13, 2014 at 3:39 pm | Permalink

      I see Miliband thinks throwing more money at GP’s is going to resolve the terrible service the public get from them. He shows no understanding of how motivational dynamics work. All he will do is end up giving another chunk of money to GP’s with no improvement in service at all.

      • Bob
        Posted May 13, 2014 at 5:17 pm | Permalink

        @Iain Gill

        He shows no understanding of how motivational dynamics work.

        But he does understand dog whistle politics.

      • Tad Davison
        Posted May 13, 2014 at 6:03 pm | Permalink

        Iain,

        Perhaps Miliband sees it as his own, to follow in the NHS’ founding father’s footsteps and ‘stuff their mouths with gold’. With all the connotations that brings with it.

        Tad

      • Lifelogic
        Posted May 13, 2014 at 6:25 pm | Permalink

        Indeed you need to give the money to the patients.

  12. Posted May 13, 2014 at 8:47 am | Permalink

    We have discussed this here before.

    You are akmost completely correct in what you say : I am sitting on several rental properties, a building plot and a second home I designed and built which I would really like to sell. These were all acquired from taxed income, not inherited cash, by the way.

    To avoid selling I even had to remortgage one of the properties as the buy-to-let term had come to an end and I refuse to sell it and pay more than £100,000 in tax.

    If I could sell I would be happy to pay a reasonable amount of tax and the remaining money would be reinvested to the benefit of the general economy. Instead, I am stuck with assets I would prefer not to own and I’m not contribuing as much as I could to the economy of the country.

    The problem is not the rate as such : 28% would be fine for short term gains but we desperately need to return to a system with taper relief to encourage longer term investment in all asset classes.

    I built up this portfolio of properties for my retirement over 15 and more years so the loss of Taper relief was a real blow. How can one plan ahead with such fundamental change in a method of taxing an asset class ?

    The problem is that the LibDems and Labour don’t really care about whether the system will raise more tax or not : they are inspired by plain greed and envy and just want to punish anybody who has made some money, irrespective of the consequences.

    Can anyone see Red Ed, probably egged on by the LibDems returning to Labour’s 18% CGT rate ?

    Thought not……….

  13. cosmic
    Posted May 13, 2014 at 8:57 am | Permalink

    Furthermore, have you ever tried finding someone in HMRC who admits to understanding CGT on shares?

    I tried a few times and never succeeded.

    I believe CGT was instituted to stop some dodge, but it’s always been an unsatisfactory tax from the point of view of revenues raised against cost of collection.

    • Lifelogic
      Posted May 13, 2014 at 9:23 am | Permalink

      Even worse for properties part let, part Principal Private Residence, some indexation and letting relief over 20 years.

      Takes about a week to read it all and work out what is due.

    • uanime5
      Posted May 13, 2014 at 10:41 pm | Permalink

      I believe CGT was instituted to stop some dodge, but it’s always been an unsatisfactory tax from the point of view of revenues raised against cost of collection.

      The dodge was people avoiding income tax by being paid in shares, then selling these shares back to the company.

  14. Jim
    Posted May 13, 2014 at 9:11 am | Permalink

    @Nick Reid: One of the reasons stamp duty revenue has held up is probably the flip side of the CGT falling. The easiest way to avoid paying CGT is to buy farmland with your gains (Roll Over Relief). Farmland prices have rocketed in recent years, mostly fueled I would say by buyers with Capital Gains to spend. This will of course generate more Stamp Duty on each purchase, at higher prices. Stamp Duty on a £5m farm is £200K, which is equivalent to a lot of average house sales.

    • Lifelogic
      Posted May 13, 2014 at 9:25 am | Permalink

      Also PPR relief so no CGT on main homes anyway. So it mainly deters sales of gains with no roll over of PPR relief.

    • sjb
      Posted May 13, 2014 at 8:43 pm | Permalink

      Jim wrote: The easiest way to avoid paying CGT is to buy farmland with your gains (Roll Over Relief). Farmland prices have rocketed in recent years [...]

      Yes, 212% over the past ten years.[1] Fig. 2 covers the period 1964 – to date and shows that from 2004 prices really start to take off [2] – but I don’t why.

      [1] Knight Frank, English Farmland Index, Q1 2014
      http://my.knightfrank.co.uk/research/?regionid=2
      [2] ibid.

  15. Atlas
    Posted May 13, 2014 at 9:23 am | Permalink

    The lack of Inflation indexation is the most vexatious matter for me. CGT is now an inflation tax.

    • Lifelogic
      Posted May 14, 2014 at 7:26 am | Permalink

      Indeed in effect a wealth tax often pushing you in to real losses on the “investment” after tax.

      We all ready have (with stamp duty) a tax that can result in you earning £100K in the year and paying taxes of say £150K in the same year. Living of the £-50K left to them after tax one assumes.

  16. stred
    Posted May 13, 2014 at 10:13 am | Permalink

    Having consulted a helpful young man on the HMRC line, I sold a property with the intention of ‘rolling over’ and buying another to fund my ‘pension’ but near to where I lived. Later a very sharp lady from the regional tax office insisted that’ rolling over’ had never been allowed for private sales and I was shafted for £20k tax-more than my annual earnings at the time. Ten years later, I am still travelling 350 miles to repair a trashed flat, but also facing 28% on the unreal gain of 50%. Should I sell, the CGT, sales costs and duty would leave insufficient funds to buy any similar investment.

    Faced with HMO regulations, Mr Milliband’s rent control and long term tenancies, and with the increasingly difficult task of finding trustworthy tenants, I am considering letting a 4 bedroom house to only 2 students for my remaining time. Then my son will be able to sell, pay the IHT only, and have somewhere to live. If he had to wait 3 years until a tenant left, he might have to borrow very large amounts just to pay the tax demanded within a tear of probate.

    The coalition has legislated to wreck investments made by people foolish enough to have voted for them.

    • Lifelogic
      Posted May 13, 2014 at 6:29 pm | Permalink

      Exactly then we have the gas and electric safety certificates, deposit protection laws it is endless stupidity from the government.

      • stred
        Posted May 14, 2014 at 11:04 am | Permalink

        Our landlord’s association is advising that we have to have a Legionaires Disease risk assessment too for domestic properties. Only £200- £3oo or half price through the association. Apparently, if a shower head is not used and the hot water temperature is kept at 45c, a vulnerable older person may possibly be squirted with bacteria and die. No-one has so far as is known, but H and S can’t be too careful.

  17. Bert Young
    Posted May 13, 2014 at 10:15 am | Permalink

    All forms of direct taxation have a negative influence on the economy . Enterprise should be rewarded and not given a “smack” on the hand . I have long been an advocate of indirect taxation believing it is an accelerating factor of growth and the most beneficial contributor to how a society is organised and needs to be maintained . The administration of our present tax regime is a nightmare requiring armies of trained specialists to deal with it at vast cost . I don’t rate myself an “idiot” , but , I would not attempt to file my own annual tax return ! Of course any restricting practice will result in all sorts of efforts to resist and avoid ; the higher the level of taxation the greater the level of avoidance !.

    • uanime5
      Posted May 13, 2014 at 10:48 pm | Permalink

      I have long been an advocate of indirect taxation believing it is an accelerating factor of growth and the most beneficial contributor to how a society is organised and needs to be maintained .

      What indirect tax are you planning to use? Sales tax? If so how do you plan to stop the black market selling goods at a fraction of the price in shops by evading this tax?

      The administration of our present tax regime is a nightmare requiring armies of trained specialists to deal with it at vast cost .

      Something that will still exist if you use indirect taxes as someone will still need to ensure that companies are avoiding or evading their taxes.

      the higher the level of taxation the greater the level of avoidance

      Got any evidence to support this claim. The government could simply declare that any action that reduces a person’s taxes that isn’t approved by HMRC is tax evasion, which would prevent almost all tax avoidance.

  18. Iain Gill
    Posted May 13, 2014 at 10:19 am | Permalink

    Sounds similar to the governments model of immigration, so far off the mark they may as well be tossing coins.

  19. Ken442
    Posted May 13, 2014 at 10:56 am | Permalink

    Shouldn’t everyone be rather more concerned at the prospect of HMRC dipping into the public’s bank accounts at its whim? Why are the Conservatives becoming ever more totalitarian?

    • matthu
      Posted May 13, 2014 at 2:16 pm | Permalink

      Try to convince me there isn’t an EU aspect to this…

      • Tad Davison
        Posted May 13, 2014 at 6:06 pm | Permalink

        This is the danger Matthu! I know this much, were I a Eurosceptic MP in today’s Tory party, I’d feel very much out of place.

        Tad

        • Hope
          Posted May 16, 2014 at 6:46 pm | Permalink

          You would not be in cabinet that is for sure.

    • Tad Davison
      Posted May 13, 2014 at 2:43 pm | Permalink

      Good question Ken, and I wonder if such a practise would be likely to drive even those who aren’t doing anything wrong, or maybe have genuinely overlooked something, away from Britain?

      Tad

    • Bob
      Posted May 13, 2014 at 5:41 pm | Permalink

      @Ken442

      Shouldn’t everyone be rather more concerned at the prospect of HMRC dipping into the public’s bank accounts at its whim?

      Have you heard of the “boiling frog” effect?

      Once the initial legislation is in place it is gradually enhanced without rousing too much resistance from Joe Public.

      This is how the EU (formerly the EEC and then the EC) was created without so much as a whimper from the European people.

  20. formula57
    Posted May 13, 2014 at 3:18 pm | Permalink

    Is this fall in CGT receipts not just mostly a timing effect? The crystallization of the liabilities to CGT is typically only postponed (possibly to be captured by IHT instead in the case of individuals (at the LibDem preferred rate of 40 per cent.!)) rather than denied surely?

    In these times where “we are all in this together”, those enjoying capital gains necessarily are the asset rich and they must expect to be called upon to make their contribution.

  21. The Prangwizard
    Posted May 13, 2014 at 3:46 pm | Permalink

    I wonder how long it will be before your government and party decides it is ‘illegal’ to avoid capital gains tax.

    • Lifelogic
      Posted May 13, 2014 at 6:36 pm | Permalink

      They already have the GAAR rule lets them say “a tax means exactly what I want it to mean” so pay up now punk or I will raid you bank account.

    • Posted May 13, 2014 at 6:43 pm | Permalink

      They already do that :

      I can’t give a property to either of my sons because the revenue make an assumption it has been “sold” at market value and they will charge the CGT anyway.

      It would actually be better to mortgage the properties, give them the money or spend it then leave the properties to the children in my will.

      They will only then pay Inheritance tax at 40% on the net value !

      • stred
        Posted May 14, 2014 at 11:39 am | Permalink

        Gifts of money are taxed above a small amount per year, in order to stop IHT avoidance.

        • Lifelogic
          Posted May 16, 2014 at 8:55 pm | Permalink

          Only if you do not live for 7 years they are PETs potentially exempt transfers.

  22. JA
    Posted May 13, 2014 at 6:29 pm | Permalink

    Pfizer/AZ

    “The facts are clear: EU regulation 139/2004 makes it plain that all mergers with what they call a ‘community dimension’ must be approved by the European Commission.”

    If true could be set up for a ‘rescue’ in the run up to the EU elections ?

    (Sorry to go off topic)

  23. Terry
    Posted May 13, 2014 at 6:35 pm | Permalink

    No, it’s proof that the Treasury is unfit for purpose. I suspect it is full of Sir Humphreys and mandarin wannabes who do not understand how the real world works outside of Whitehall. Surely, it’s time to get tough and get rid of all the deadwood down there? The country MUST be more important than any of these “jobs for life”.

  24. sm
    Posted May 13, 2014 at 10:03 pm | Permalink

    Comparison of CGT without looking at Income tax & others in general,as well as the state of the economy, rule changes and election cycles is smoke and mirrors.

    We have seen how those that can write their contracts will bend with the wind.
    Bankers are now paid higher basic salaries to get round rules etc.

    We should simplify and simply charge the same rate on capital as income. ( Australia does with some relief on PPR)

    Most do not however consider the gains were mostly as a result of money supply growth and credit creation which has effected those who cannot afford assets that track inflation.

    If we allow allow the created money to be mostly lent against property we get house price inflation and spurious gains. Creating distortions an impediments to decisions as people mention above.

    Inflation & Fiscal drag is cynically used to extract tax or purchasing power in various ways.

    Why not just control the money supply directly via central banks with laws and limits set by a constitution and then it handed to the government of the day to spend as it thinks fit.

    Where does all the money from come at present? and where has it gone?

  25. uanime5
    Posted May 13, 2014 at 10:50 pm | Permalink

    Many individuals and companies simply refuse to sell assets which are sitting on large gains, even though they would rather switch them into something more useful for their current needs.

    Given that the state will live longer than these individuals the state can simply wait, and eventually these individuals will have to sell these assets or will die of old age (resulting these assets being sold or inherited). Companies are more problematic as they won’t die of old age but are unlikely to hold assets indefinitely because as soon as these assets lose value the company will sell them in order to avoid a greater loss.

    Rich individuals who have power to switch the domicile of themselves or their assets find it more worthwhile to do so if they are thinking of selling something at a good profit. Individuals with losses as well as gains make sure they take offsetting losses when rejigging their investments.

    Does this work with properties located in the UK? If not then this would only justify reducing CGT on things that can be easily moved to other domiciles.

  26. Lindsay McDougall
    Posted May 13, 2014 at 11:40 pm | Permalink

    We have had this debate before. As far as I know, high CGT and the highest rate of income tax are the only taxes that have been found to reduce total tax revenue.

    It may be a good idea to look at the effects on tax revenue of high stamp duty and reducing the level of the 40% tax threshold. Also their effect on emigration.

    • Lindsay McDougall
      Posted May 14, 2014 at 1:59 pm | Permalink

      I was gobsmacked when I read a Telegraph front page story today that income between £100,000 and £120,000 is effectively taxed at a 60% rate because the personal allowance is removed. Not only that but apparently this started life as a Labour measure that has been reinforced – i.e. the range of incomes taxed at 60% has been widened – by the Coalition Government.

      Never having inhabited this rarified atmosphere I can’t comment on the truth of the story. Perhaps Mr Redwood can confirm or deny it.

      Reply Yes it is true, and I have often recommended a lower rate.

      • Narrow shoulders
        Posted May 15, 2014 at 1:15 pm | Permalink

        Not forgetting from £50 to £60 K if you or your spouse claims child benefit. The marginal rate can be even higher than 60% if you have enough children and at £60, 000 the rate is over 100%

      • Narrow shoulders
        Posted May 16, 2014 at 7:28 am | Permalink

        There is a 100% marginal rate at £60K for those wealthy recipients of child benefit and a 60% marginal rate for those same recipients between 50 and 60k

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    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.
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