I have been asked this question yet again today. I have a five step plan:
1) Increase the tax threshold at which tax is paid by £1,000 for everyone. For most people this will reduce their tax liability by £200 - the value that (near enough) the 10p band gave them;
2) Reduce the standard rate band by £1,000. This will increase the tax take for those on higher rate by £200. This will leave them no better or worse off by these changes. That’s fair. This is not meant to effect them, but will save more than £2 billion in tax.
3) Ensure all capital gains made on disposals of assets held for less than a year are subjected to income tax without offset of the CGT allowance. This might easily raise £1 billion: I suspect rather more since I have shown in the Missing Billions that 17% of all capital disposals are of assets held for less than a year;
4) Deem that all asset sales by a spouse or civil partner who received the asset as a gift from their spouse/partner in the year preceding sale are treated as being disposals by then original owner to stop gains shifting between partners. I suspect this will raise more than £0.5 billion.
5) Ensure that every stock broker in the UK has to automatically supply data on share sales made by a UK resident person to HMRC. At present share sales of little more than £5 billion a year are reported to HMRC, which is implausible when more than £250 billion of shares are held by UK resident individuals. Automatic reporting would massively increase capital gains compliance. I suspect more than enough would be raised to pay for the cut in income tax for all taxpayers now on the basic rate band, costing about £4 billion a year.
It’s radical, simple and progressive. It’s what the Labour Party should be doing. I suspect someone else will propose it.
4 Comments
Hi Richard,
Re your asset disposal proposal, I can see that causing bad feeling when it interacts with inheritance tax, as follows:
- Beneficiary of an estate needs to sell an asset from, or part of, that estate - e.g. a valuable painting - to pay IHT.
- Because they’ve owned that asset for less than a year they will pay IT on it instead of CGT, i.e. much more tax.
So I can see people saying, “They’re taxing us so that we can’t afford to pay tax”.
How would you reply to that please?
M
M
I’m not sure that this follows.
CGT is cancelled by an IHT paid on death and the ebenficiary gets at market value on death for CGT purposes. If they sell within a year the gain will probbaly be quite small so making this a very minor issue, and probbaly not an issue at all.
And of course, they would only pay tax on any gain made since death, so they could afford to pay: this would be theirs.
I can’t see the problem with that
R
Hi Richard,
I follow you - so the gain would be small because it would only be the difference between the market value at time of death / inheritance and the market value at time of sale?
My fault entirely, I got confused. Apologies.
M
M
The person who has not made a mistake has not lived
R
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