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LuckyOne

Taper Relief Is A Relative Transfer Of Wealth .......

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I am a bit confused about the logic being put forward by those in favour of taper relief on CGT calcuations.

Imagine 2 investors. The first buys a 10 year Gilt. The second buys a BTL house for the equivalent amount of money and sells it after 10 years. Further imagine that inflation rises to the point where prices double in 10 years and that HPI tracks CPI perfectly. Finally imagine that rents increase with inflation while Gilt yields are fixed

After tax, the saver has suffered a 50% loss in purchasing power on the maount invested and receives no tax relief. In the case of the housing speculator (assuming a 20% net CGT after taper relief) the loss in purchasing power is only 10%. The housing speculator has also enjoyed rising rents compared to the saver who has suffered from fixed Gilt coupons.

In an ideal world, gains from inflation should not be taxed at all as gains are illusionary.

In practice, why should we set up our tax system so that it rewards speculators at the expense of savers on a relative basis? Any taper relief on capital gains just makes this transfer of wealth larger.

Unless tax laws are internally consistent and symmetrical with respect to the impact of inflation on income from all sources, they will cause a misallocation of assets along the risk spectrum.

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I am a bit confused about the logic being put forward by those in favour of taper relief on CGT calcuations.

Imagine 2 investors. The first buys a 10 year Gilt. The second buys a BTL house for the equivalent amount of money and sells it after 10 years. Further imagine that inflation rises to the point where prices double in 10 years and that HPI tracks CPI perfectly. Finally imagine that rents increase with inflation while Gilt yields are fixed

After tax, the saver has suffered a 50% loss in purchasing power on the maount invested and receives no tax relief. In the case of the housing speculator (assuming a 20% net CGT after taper relief) the loss in purchasing power is only 10%. The housing speculator has also enjoyed rising rents compared to the saver who has suffered from fixed Gilt coupons.

In an ideal world, gains from inflation should not be taxed at all as gains are illusionary.

In practice, why should we set up our tax system so that it rewards speculators at the expense of savers on a relative basis? Any taper relief on capital gains just makes this transfer of wealth larger.

Unless tax laws are internally consistent and symmetrical with respect to the impact of inflation on income from all sources, they will cause a misallocation of assets along the risk spectrum.

Imagine the gilt is sold in two years for a profit ....

Imagine the gilt is index linked....

Imagine houses lose their value over the period....

There are plenty of speculators in the world of gilts...... now having said that I'd agree that staid old savings don't get a preferential tax treatment currently but in reallity for most who keep their money in cash ( the only form of saving that isn't speculation) most will have sufficient leewya in their ISA allowances to invest tax free... of course buyers of houses would love to invest tax free but they can't and in that situation might argue the savers and other types of investors have an unfair advantage...

I think its much much more complicated than your post proposes

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  • 150 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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