The government is undertaking a review of capital gains tax, but it's my suggestion that very few people seem to have much understanding of why we have this tax, and what it is meant to achieve. That's what this video is about.
My submission to the Office for Tax Simplification on this issue is here.
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I don’t believe you suggested in the video what changes should be made to CGT to improve it – equalisation with income tax rates?
See the submission for those
Useful background. I am not sure that I agree with the description of the CGT tax free allowance as an ‘annual’ allowance. It is of course applied in the year of disposal. For it to be an annual allowance, it should be applied for every year an asset gains in value. Also there is an arguement that CGT is a tax on inflation. There is a case for taper relief to be introduced in my view. The unintended consequence to not doing this is to force people like me to pass assets on in the form of inheritance to wash out CGT when I would much rather sell in my lifetime, pay a fair rate of tax and enjoy spending what is left.
Why should people get to enjoy inflated gains tax free?
Because the purchasing power has declined..quite simple if you are fair and rational. If you are solely hostile as is the nature of the far left then taxing inflated as opposed to real gains is probably where your at.
Asset price inflation, largely fuelled by government policy as a result of QE has increased overall net personal work in the UK totally disproportionately in the last decade, with a consequent massive increase in inequality, and so access to opportunity in this country. If you think that it is fair to create inequality in that way, then I think it totally fair to reduce it through taxation
Inflated gains aren’t real gains, that’s exactly the point.
But they have massive distribution of impact, nonetheless
Thanks for the video explanation Richard – I probably wouldn’t have read about capital gains tax as it doesn’t affect me – except that as you say it’s an unfair tax as many things are for those of us without money to invest, or the knowledge, and pay full income tax, along with all the other taxes. But many things in life are unfair!
It always seems to me that the tax system is so complex because there have been so many parts bolted on over the years in no particular order, the whole has ended up as a barely functional beast of a monstrosity (I’m envisaging a massive ugly static steam engine made by a series of mad professors).
You’re right, Contrary, about the UK tax system being hopelessly over-complicated and about its Heath Robinson appearance. Successive chancellors have tinkered with Income Tax for about 200 years. Add in their endless tinkering with all the long-lasting 20th century taxes & Nat Ins and you get what UK has: a complex guddle of ever-changing rules and all the resultant unintended consequences that need new legislation to correct. There are plenty of UK tax experts out there, but I doubt if anyone has top-level expertise in all its aspects.
Scotland has the opportunity to simplify tax matters if/when independence comes about by designing a principles-based system where the principles are codified in something like a Tax Constitution in order to prevent corruption of these principles by opportunistic politicians. In fact the Institute of Chartered Accountants of Scotland (ICAS) went some way towards that in a paper it wrote in the lead-up to the 2014 Indy referendum. This was written from a politically impartial standpoint as an essay at defining the guiding principles and potential goals for a new tax system and could be revived as a start-point ahead of any new referendum.
Ken
Do you have a link? I know I read it, but it would be good to do so again
Richard
Reply to Richard’s post 7:31am today
There were 2 papers which I downloaded at the time, so I no longer have a link to the original ICAS source. However I’ll send both by private email. They were written in 2012, so elements of it may no longer apply. I haven’t read them in years myself but will do so on the first rainy day.
Thanks
As I said in my post I am in favour of paying tax on gains I just feel that there should be an allowance related to length of ownership as is the case in many other countries. I was trying to highlight the contradiction in government policy around on the one hand trying to increase the supply of housing by dissincentivising BTL through taxation, and on the other hand incentivising landlords to hang on to property until death because of punitive rates of CGT, so not releasing property into the market and losing any tax on the inflated gain. The issue of tax on inflated gains applies equally in my view to residential property where people make significant sums of untaxed income through renovating their own home and then moving from project to project to build wealth which is not taxed.