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Should Capital Gains Tax be rolled into Income Tax?

Should Capital Gains Tax be rolled into Income Tax?  

28 members have voted

  1. 1. Should Capital Gains Tax be rolled into Income Tax?

    • Yes
      15
    • No
      13


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I've just been reading this:

Surplus Energy Economics:  The reality behind Britain's "Productivity Puzzle"

Quote

Put yourself in the position of somebody with, say, £1m to invest. How does this person set out to increase this capital?

Essentially, there are two ways of doing this.

First, he or she can invest in an enterprise, bringing new goods or services to the market. This can be described as ‘innovation’, because the aim is to create value where it didn’t already exist.

The alternative is to buy existing assets, aiming to profit from a rise in their price. This can be termed ‘speculation’. This is not intended as a pejorative term. It simply means that anticipated rises in asset prices are speculative, because these increases might not happen, and prices might actually fall rather than rise.

For the investor, either strategy can prove equally efficacious. From a national, macroeconomic perspective, however, they are as different as chalk and cheese.

Investing in new goods and services adds value to the economy.

Investing in existing assets does not.

The trick for government is to favour the innovation route which delivers newstreams of value, making it more attractive than the alternative, non-value-adding choice. By ‘more attractive’ is meant ‘offering a more favourable blend of risk and return’.

Britain, to a greater extent than most, has got this balance wrong. Moreover, successive governments, far from addressing this handicap, have gone to great efforts to make it even worse.

An obvious example of speculation is property flipping.

This balance might be righted by reducing Corporation Tax (a tax on enterprise) and increasing Capital Gains Tax (a tax on speculation).  However, it seems to me that it is so easy to legally avoid CGT and pay Corporation Tax instead, such as by setting up a company to own the assets being speculated on, it might be better just to simplify the taxes and roll CGT into Income Tax.  If CGT was rolled into Income Tax but there was no change in the Income Tax Personal Allowance then this would effectively increase taxation on Capital Gains by abolishing the CGT Annual Exempt Amount.

Any thoughts?

Edited by Will!

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Yes. Almost no poor person has ever benefited from the zero rate band of CGT.

I have often thought there is money to be made by finding a way of utilizing all the unused cgt exemptions.

But if you did that, the exemptions would be removed forthwith.

I am surprised that Labour haven't attacked this blatant giveaway to the wealthy before now. (Actually I am not surprised at all).

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All capital gains should be taxed at your marginal rate of Income Tax.

Go to work for a £1million salary and keep £540k.

Cash in a £1m gain on some shares and keep £800k.

CGT is to serve the non-working rich IMO

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No, with any investment there is inherent risk. I think there does need to be a separate tax to reflect this. 

But I do think that they need to make sure that capital gains tax *is* paid on capital gains made on UK property. Running away to Malta for five years should not get you off the hook...

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No, but CGT is way too low. It should probably not have a flat rate, but be tiered.

Profits in non-productive assets, such as property, should be taxed at a higher rate than your marginal rate of tax. 

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The admin required would be enormous if there were no zero-band for CGT. HMHC would collapse under the weight of all the paper if you had to declare the smallest gain on anything.

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People would probably find a way to use Capital losses (even if they are just paper loses) to offset this against income tax so that they effectively pay hardly any taxes on their actual incomes.

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The trouble with your argument is that:  why should they be set the same.

I'd argue (as does your linked article, I think), that unearned gains should be taxed much higher than income, not lower (as present).

Beyond that, income from equity should be taxed higher than income from labour.

If you wanted to give the 'right' incentives, you'd do something like (all 'base rates'):

Income from labour: 20%. (inc NI, £10k allowance)

Income from equity: 30% (£1k allowance)

Income from capital gains: 40%  (£10k allowance, but allow rolling-over of unused allowance for 10 years*)

[* You're right in that CGT allowances just aren't normally used by 'normal' people, and then all of a sudden along comes something odd like a house and they've paying massively.

Wealthy people use up their allowances every year.  This would normalise things a bit.]

 

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Much of the increase in value of an asset is due to inflation reducing the value of each Pound. Some assets have shown appreciation beyond the normal rate of inflation (houses and good shares being examples), but why should the Govt benefit from a tax on an increase in asset value brought about by a devaluation of the currency, which the Govt has caused?

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I admit it is unfair compared to income tax but I am in the camp for lower taxes and massively reduced government spending so would always argue for cutting income tax over increasing capital gains tax.

I have been fortunate this year and between me and my partner have done very well compared to what would have been paid on the same sum through income tax.

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13 hours ago, Will! said:

Any thoughts?

Yes -The UK's wealthy elite hold their wealth in land and property assets just as they have since 1066, they will continue to pursue policies that inflate the price of land and property until they are forced to do otherwise.  Tax framework change that works against land and property price inflation is pie in the sky IMO, and therefore...

"Moreover, successive governments, far from addressing this handicap, have gone to great efforts to make it even worse"...  will just continue.

 

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No. I don't speculate on the value of my work and therefore my salary. I do whatever I need to for an agreed income I expect. I don't sit down with my employer every morning and discuss how much I will be paid that day.

 

After earnings, if I take that money and speculate on the value of a house, that should be treated differently.

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Lots of good posts, thanks.  I like tax simplification but I like not taxing in a way that discourages productivity more.  CGT isn't perfect but I guess it's the best idea so far. 

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14 hours ago, oatbake said:

No, with any investment there is inherent risk. I think there does need to be a separate tax to reflect this. 

But I do think that they need to make sure that capital gains tax *is* paid on capital gains made on UK property. Running away to Malta for five years should not get you off the hook...

It's the market's job to price and reward risk, there's no need for the tax system to reflect this.

Some jobs are risky (not just dangerous, but also the work may be sporadic or unstable), should those jobs be taxed less?  

The market already pays more for risky jobs, so why have the government meddle in that?

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