Capital Gains Tax rates to double?
Discussion
Chancellor Rishi Sunak is looking for ways to pay for the costs of coronavirus.
The Office for Tax Simplification has said that Capital Gains Tax, levied at 10% for basic-rate taxpayers and 20% for higher-rate taxpayers, could be doubled by bringing the rates into line with income tax.
OTS also suggested scrapping the rule whereby Capital Gains evaporate when you die so that CGT and IHT are not charged at the the same time.
More than 31 million people pay tax on their income, raising £180bn in 2017/18. By contrast, only 265,000 pay tax on capital gains and a significant proportion of them will be second home/BTL owners.
CGT at income tax rates and with no indexation of base cost (i.e. adjustment for inflation) would be a very aggressive tax. Anyone who's got gains they can swallow while the low CGT rates apply might be well advised to give it some serious thought.
The Office for Tax Simplification has said that Capital Gains Tax, levied at 10% for basic-rate taxpayers and 20% for higher-rate taxpayers, could be doubled by bringing the rates into line with income tax.
OTS also suggested scrapping the rule whereby Capital Gains evaporate when you die so that CGT and IHT are not charged at the the same time.
More than 31 million people pay tax on their income, raising £180bn in 2017/18. By contrast, only 265,000 pay tax on capital gains and a significant proportion of them will be second home/BTL owners.
CGT at income tax rates and with no indexation of base cost (i.e. adjustment for inflation) would be a very aggressive tax. Anyone who's got gains they can swallow while the low CGT rates apply might be well advised to give it some serious thought.
I saw this yesterday. I'm a landlord and have some shares that pay a decent dividend. If all the recommendations are implemented then it will really sting, especially if I sell my BTL.
I don't mind paying my fair share but it does seem in recent years that the middle classes have been hammered with tax rises; especially as I live in Scotland and we pay 53% tax (41% income tax + 12% NI) between the UK and Scottish higher rate income tax thresholds.
I don't mind paying my fair share but it does seem in recent years that the middle classes have been hammered with tax rises; especially as I live in Scotland and we pay 53% tax (41% income tax + 12% NI) between the UK and Scottish higher rate income tax thresholds.
Edited by Ecosseven on Thursday 12th November 17:18
One group of people who could be significantly affected are those selling businesses.
Until recently Entrepreneur's Relief which enabled people selling a business to make up to £10million (lifetime limit) and pay only a reduced 10% rate of CGT.
The recent change cut that relief severely to gains of only £1m (lifetime limit), although at a maximum CGT rate of 20% the difference in tax wasn't all that big.
However, a jump to 45% would get people awake and paying attention! (Perhaps the relief would be further adjusted to ease the pain.)
Until recently Entrepreneur's Relief which enabled people selling a business to make up to £10million (lifetime limit) and pay only a reduced 10% rate of CGT.
The recent change cut that relief severely to gains of only £1m (lifetime limit), although at a maximum CGT rate of 20% the difference in tax wasn't all that big.
However, a jump to 45% would get people awake and paying attention! (Perhaps the relief would be further adjusted to ease the pain.)
Pheo said:
I don’t see why those earning an income should shoulder more of the tax burden if you are making a profit... what’s the justification for you holding an asset and making a money and paying half as much tax of someone doing the same but on an employed basis?
Because they paid income tax and NI on the way in? The capital came from somewhere you know...Simpo Two said:
Because they paid income tax and NI on the way in? The capital came from somewhere you know...
Plus risk of course. There is absolutely no risk when working as an employee, other than opportunity cost I guess. There absolutely is a risk when starting a business, buying an asset etc.On the one hand, it makes sense to bring these various taxes into line and it also won’t lose any meaningful votes but would gain votes from the majority who are unaffected.
The flip side being that these taxes are deliberately low to stimulate economic activity and turnover so quite possibly generate more taxes through activity than they relinquish but also, a change such as this will lead to a larger shift of assets being legitimately held offshore as we’ve seen with high end London properties being moved into offshore SPVs. So of that 265k people who generate CGT each year, even more of the larger ones will become hugely incentivised to trade away some security and upfront taxes to secure long term tax security.
It’s a concept that seems logical and fair on the surface but while it would deliver a short term rise in taxes the long term loss of taxes would dwarf this benefit.
There is arguably more logic in raising taxes on non essential purchases via a new VAT tier and online purchase tax so as to raise this money voluntarily via apex consumers than to aggressively attack savers and those who generate commerce as those taxes have long term negative impacts to an economy.
The flip side being that these taxes are deliberately low to stimulate economic activity and turnover so quite possibly generate more taxes through activity than they relinquish but also, a change such as this will lead to a larger shift of assets being legitimately held offshore as we’ve seen with high end London properties being moved into offshore SPVs. So of that 265k people who generate CGT each year, even more of the larger ones will become hugely incentivised to trade away some security and upfront taxes to secure long term tax security.
It’s a concept that seems logical and fair on the surface but while it would deliver a short term rise in taxes the long term loss of taxes would dwarf this benefit.
There is arguably more logic in raising taxes on non essential purchases via a new VAT tier and online purchase tax so as to raise this money voluntarily via apex consumers than to aggressively attack savers and those who generate commerce as those taxes have long term negative impacts to an economy.
For many, many years, there was no specific Capital Gains Tax rate at all. The tax chargeable on the gain was calculated at the top rate of Income Tax of the taxpayer. So, if a person was a higher rate tax payer, they paid CGT at 40%.
The creation of special Capital Gains Tax rates which were independent of Income Tax rates only happened in 2008 when Alistair Darling introduced two CGT rates - 10% and 20%. However, at the same time these new rates were introduced, the old system for taking the effect of inflation on the gain into account (Taper Relief ) was abolished.
In more recent years, special higher rates of Capital Gains Tax (18% and 28%) were introduced for the disposal of Residential Properties. The 10% and 20% rates still apply to all other assets.
The creation of special Capital Gains Tax rates which were independent of Income Tax rates only happened in 2008 when Alistair Darling introduced two CGT rates - 10% and 20%. However, at the same time these new rates were introduced, the old system for taking the effect of inflation on the gain into account (Taper Relief ) was abolished.
In more recent years, special higher rates of Capital Gains Tax (18% and 28%) were introduced for the disposal of Residential Properties. The 10% and 20% rates still apply to all other assets.
Pheo said:
I don’t see why those earning an income should shoulder more of the tax burden if you are making a profit... what’s the justification for you holding an asset and making a money and paying half as much tax of someone doing the same but on an employed basis?
IIRC that was the logic adopted by New Labour when they moved Income Tax and CGT rates into line some years ago. I think CGT had previously been a flat rate of 30% irrespective of a taxpayer's income situation. Conservative governments subsequently moved the rates apart again.As DA has pointed out above CGT tends to cause stagnation in an economy if people are deterred from selling stuff and reinvesting elsewhere.
Differential rates of tax tend to affect people's behaviour. If "growth" is taxed at 20% while "income" is taxed at 40% then it doesn't take Mr Investor very long to work out which he'd rather have!
CGT without an indexation allowance (inflation proofing) works as a Wealth Tax. For instance, on a residential property (not main residence),
- Bought for £200k in 2010
- Inflation running at, say, 2% p.a.
- Equivalent price in 2020 = £240k
However, they will be charged CGT of £10,500 (higher rate taxpayer with no other gains). Quite literally a tax on inflation.
rockin said:
IIRC that was the logic adopted by New Labour when they moved Income Tax and CGT rates into line some years ago. I think CGT had previously been a flat rate of 30% irrespective of a taxpayer's income situation.
Nope - up until 2008, CGT was charged on an individual at their top rate of Income Tax. There was no specific CGT rate.Limited companies paid CGT at their top rate of Corporation Tax (they still do).
CGT was originally introduced in 1965.
I see that I was correct with the principle and adrift with the date of the change!
https://assets.publishing.service.gov.uk/governmen...
https://assets.publishing.service.gov.uk/governmen...
- CGT was flat rate 30% until 1989
- From 1989 to 2008 it was at income tax rates
- Thereafter on either an 18/28% split or more recently 10/20% split (plus residential surcharge).
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