Capital Gains Tax Question
Discussion
There is a long tradition that tax changes aren't retrospective. The Budget speech tends to say most tax changes are with effect from the following 6 April. Some things are changed "from midnight tonight" if they think people will run around avoiding tax between the Budget and 6 April and/or if the tax is easy to collect. For instance, some VAT rates were changed on 15 July 2020 as an emergency response to Covid19. Also Stamp Duty on 8 July 2020.
In the case of CGT the tax rate that applies is always the rate that was in force at the date you made your sale (i.e. crystallised your gain or loss).
IIRC income tax and CGT rates have only ever been changed with effect from 6 April.
In the case of CGT the tax rate that applies is always the rate that was in force at the date you made your sale (i.e. crystallised your gain or loss).
IIRC income tax and CGT rates have only ever been changed with effect from 6 April.
RichB said:
Thank's chaps, that's good to know. I suspect CGT could one tax that could be increased a few points to pay for the Covid expenditure.
Yes, but CGT is not a big money-raising tax for the government simply because it's so easy to avoid. That is, unless you're in BTL where property owners are sitting ducks for taxation.The BIG taxes are income tax and VAT. Flex those by 1% and the impact on the Treasury is huge. Fuel/booze/fags/gambling duties are also big earners.
In comparison CGT and IHT are relatively avoidable.
As regards CGT rate it's currently pretty benign at the basic 10%/20% but that's not the full story - they cancelled indexation relief a few years back so CGT is now a tax on inflation. If the rate is pushed up, for instance back up to marginal income tax rate, the combined effect would be massive. It would also bring the economy to a shuddering halt as people would stop selling anything.
rockin said:
Yes, but CGT is not a big money-raising tax for the government simply because it's so easy to avoid. That is, unless you're in BTL where property owners are sitting ducks for taxation.
The BIG taxes are income tax and VAT. Flex those by 1% and the impact on the Treasury is huge. Fuel/booze/fags/gambling duties are also big earners.
In comparison CGT and IHT are relatively avoidable.
The talk on R4 today suggested CGT, Corporation Tax and Pension tax relief, and commented on 'soak the rich'.The BIG taxes are income tax and VAT. Flex those by 1% and the impact on the Treasury is huge. Fuel/booze/fags/gambling duties are also big earners.
In comparison CGT and IHT are relatively avoidable.
Income and tax and VAT may be the big earners but they're also the most contentious and the best vote losers. You can be sure that Labour etc would start banging on about poverty.
I wonder how much better off those people would be if most gambling and 24 hour drinking were banned? - ie pre-Blair?
^^^ I think you're right. Increasing the taxes you mentioned is easy to sell politically, even if it hits traditional conservative voters. CT can be be a big money-raiser but caution is needed when so many companies can simply export themselves (i.e. their corporate HQ) to a country with lower rates.
The big one right now is the global tax question of how countries are going to prevent themselves continuing to be milked by the big tech companies, mostly American, who pay very little tax in the countries where they actually generate their profits.
The big one right now is the global tax question of how countries are going to prevent themselves continuing to be milked by the big tech companies, mostly American, who pay very little tax in the countries where they actually generate their profits.
Simpo Two said:
rockin said:
Yes, but CGT is not a big money-raising tax for the government simply because it's so easy to avoid. That is, unless you're in BTL where property owners are sitting ducks for taxation.
The BIG taxes are income tax and VAT. Flex those by 1% and the impact on the Treasury is huge. Fuel/booze/fags/gambling duties are also big earners.
In comparison CGT and IHT are relatively avoidable.
The talk on R4 today suggested CGT, Corporation Tax and Pension tax relief, and commented on 'soak the rich'.The BIG taxes are income tax and VAT. Flex those by 1% and the impact on the Treasury is huge. Fuel/booze/fags/gambling duties are also big earners.
In comparison CGT and IHT are relatively avoidable.
Income and tax and VAT may be the big earners but they're also the most contentious and the best vote losers. You can be sure that Labour etc would start banging on about poverty.
I wonder how much better off those people would be if most gambling and 24 hour drinking were banned? - ie pre-Blair?
This rise in CGT talked about today was first mentioned in the press a couple of months ago.....at that time along with a possible wealth tax and loss of nil rate CGT on primary residence. Latter two seem to have been dropped but I think what we’re seeing in the press today is very much what is coming.
I personally think there’s a chance that CGT will become “active” as soon as it’s announced rather than waiting until the new tax year...maybe it’s too complicated to do that but that is my guess.
People talking about how easy it is to avoid CGT ? I am not aware of ways of doing so without taking further risk....i.e. EIS.
Cheib said:
People talking about how easy it is to avoid CGT ?
Typically people will cycle through their annual allowance every year and over a long period of time it's very valuable.ISA = CGT free.
SIPP = CGT free
Entrepreneurs Relief = £1m of gains at just10% tax.
Old folks - no point paying CGT when it's going to disappear into IHT. You don't pay both taxes at the same time.
[Forgot to tell HMRC about a cheeky little gain - how will they ever find out? It's a very difficult tax to police.]
As mentioned earlier, it's really only the BTL crew who are sitting ducks for CGT collection, especially since transactions are so easily tracked through the Stamp Duty system and the CGT rates on residential property have been boosted by 8%. And they usually can't use their annual allowance every year.
rockin said:
The big one right now is the global tax question of how countries are going to prevent themselves continuing to be milked by the big tech companies, mostly American, who pay very little tax in the countries where they actually generate their profits.
It's an interesting test of who has the most clout, Corporation or Country. The East India Company comes to mind.But presumably even the countries where these giants are based for tax purposes are going to need to claw some revenue back too, and raise taxes? But even then, if they suddenly have to pay more tax you can be fairly sure they'll pass it on to Joe Consumer, so we'll still lose out. In my limited grasp of economics, governments have only two sources of money: (1) they borrow it (2) they take it from Joe Consumer.
So what we need, said Chancellor Simpo suddenly, is for all the countries to borrow trillions to pay off all their debts and stash the coffers nice and high, then all default and keep it. Or just go back to bartering and cowrie shells lol.
ETA Apols for rambling!
Edited by Simpo Two on Sunday 30th August 18:29
rockin said:
Typically people will cycle through their annual allowance every year and over a long period of time it's very valuable.
I'm surprised it makes that much difference. Most CGT surely comes from large portfolios. If you have, say, £2m in a taxable portfolio with a 5% gain in a 'fair' year that's £100k gain and the annual exemption represents only a small part of that. A more radical approach would be to abolish, or restrict in some way, loss relief carry forward. Not too difficult to implement but would be seen as 'unfair' and likey lead to a big change in investor behaviour with less risk-taking.
CGT on primary residence gains could be a big earner but unpopular and stall the housing market. And issues of retrospection and allowable 'improvement' expenses given many folk won't have good records of what they spent.
It seems strange that in the digital era we seem wedded to the ancient concept of taxing money only when it moves. Some form of wealth tax must be attractive if it can be administered easily. Wasn't there a country (Malta??) that after the GFC imposed a 10% (??) haircut on all bank deposits? Could be badged as a one-off Covid recovery measure and applied to all UK liquid assets on the day of the announcement. Or a meaningful one-off council tax surcharge on, say, Band G+?
Plugging IHT exemptions, eg with a charge on lifetime gifts, has logic but perhaps too close to another Tory sacred cow.
Someone with the brains of Mr Cummings I'm sure will have some bright ideas!
Cheib said:
Simpo Two said:
rockin said:
Yes, but CGT is not a big money-raising tax for the government simply because it's so easy to avoid. That is, unless you're in BTL where property owners are sitting ducks for taxation.
The BIG taxes are income tax and VAT. Flex those by 1% and the impact on the Treasury is huge. Fuel/booze/fags/gambling duties are also big earners.
In comparison CGT and IHT are relatively avoidable.
The talk on R4 today suggested CGT, Corporation Tax and Pension tax relief, and commented on 'soak the rich'.The BIG taxes are income tax and VAT. Flex those by 1% and the impact on the Treasury is huge. Fuel/booze/fags/gambling duties are also big earners.
In comparison CGT and IHT are relatively avoidable.
Income and tax and VAT may be the big earners but they're also the most contentious and the best vote losers. You can be sure that Labour etc would start banging on about poverty.
I wonder how much better off those people would be if most gambling and 24 hour drinking were banned? - ie pre-Blair?
This rise in CGT talked about today was first mentioned in the press a couple of months ago.....at that time along with a possible wealth tax and loss of nil rate CGT on primary residence. Latter two seem to have been dropped but I think what we’re seeing in the press today is very much what is coming.
I personally think there’s a chance that CGT will become “active” as soon as it’s announced rather than waiting until the new tax year...maybe it’s too complicated to do that but that is my guess.
People talking about how easy it is to avoid CGT ? I am not aware of ways of doing so without taking further risk....i.e. EIS.
If they put the tax up too much people just won’t sell and they will get no CGT at the current 18/28%, never mind 20/40%. Tax take will go down. Unless of course they are planning to raise CGT for second properties and then bring in a law making owning more than one property as a private individual illegal.......wouldn’t put anything past this current shower of total muppets.
brickwall said:
There’s a few pots of ‘easy money’ in CGT: for instance it’s well known that corporate inventive schemes (particularly in private equity and venture capital) are structured such that a management LTIP is a ‘capital gain’ and therefore CGT rates apply - makes a big difference to them if you’d otherwise be paying 45% + NIC.
There were quite a few changes to the taxation of carried interest back in 2015 that significantly increased the amount of tax most recipients would have to pay, including to income tax levels in certain circumstances.brickwall said:
HootersGsy said:
brickwall said:
There’s a few pots of ‘easy money’ in CGT: for instance it’s well known that corporate inventive schemes (particularly in private equity and venture capital) are structured such that a management LTIP is a ‘capital gain’ and therefore CGT rates apply - makes a big difference to them if you’d otherwise be paying 45% + NIC.
There were quite a few changes to the taxation of carried interest back in 2015 that significantly increased the amount of tax most recipients would have to pay, including to income tax levels in certain circumstances.But take the classic PE model where you offer management a cut in the ‘ordinary equity’, meanwhile load up 99.99% of the company with debt or debt-like instruments (bank debt plus shareholder loan notes with interest set at fund hurdle) - so long as the management buy in at ‘fair value’ then they’re normally safe. That fair value will obviously depend when in the cycle they bought in (and often precludes joining the scheme late)l
Whether that’s right or wrong I don’t know - it’s a capital gain in that they bought shares and if the asset value doesn’t rise sufficiently then there’s no gain on those shares and no payout.
But it’s also fair to say that many such management would not be taking those roles if the expected value of that scheme was £0 - and indeed likely factor the tax differential into their calculations of different pay offers.
The purpose of structuring the schemes this way seems entirely to be so they qualify for CGT rather than income tax.
Management buy in (assuming in this case the management of a portfolio company) is not carried interest, it's either buying straight shares at FMV as you state which has always been subject to CGT and I can't see changing - do you think buying and selling shares should be subject to income tax just because they happen to be in your employer? Or some form of LTIP which generally is taxable as income unless you're lucky enough that it falls into one of the few approved regimes.
Carried interest has all sorts of rules attaching to it now, for example the holding period of investments has to be > 3.5 years to avoid being treated as income. The old base cost shift is no longer allowable bringing essentially all of the return into the CGT net at 28%. Yes, it's still slightly preferable to income tax rates but certainly nowhere near as preferable as it was over 5 years ago.
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