Will! Posted December 3, 2017 Share Posted December 3, 2017 (edited) 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 December 3, 2017 by Will! Quote Link to comment Share on other sites More sharing options...
CunningPlan Posted December 3, 2017 Share Posted December 3, 2017 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). Quote Link to comment Share on other sites More sharing options...
Drummer Posted December 4, 2017 Share Posted December 4, 2017 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 Quote Link to comment Share on other sites More sharing options...
oatbake Posted December 4, 2017 Share Posted December 4, 2017 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... Quote Link to comment Share on other sites More sharing options...
Ah-so Posted December 4, 2017 Share Posted December 4, 2017 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. Quote Link to comment Share on other sites More sharing options...
Nationalist Posted December 4, 2017 Share Posted December 4, 2017 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. Quote Link to comment Share on other sites More sharing options...
OverInflated Posted December 4, 2017 Share Posted December 4, 2017 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. Quote Link to comment Share on other sites More sharing options...
dgul Posted December 4, 2017 Share Posted December 4, 2017 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.] Quote Link to comment Share on other sites More sharing options...
onlooker Posted December 4, 2017 Share Posted December 4, 2017 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? Quote Link to comment Share on other sites More sharing options...
doomed Posted December 4, 2017 Share Posted December 4, 2017 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. Quote Link to comment Share on other sites More sharing options...
Wayward Posted December 4, 2017 Share Posted December 4, 2017 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. Quote Link to comment Share on other sites More sharing options...
sPinwheel Posted December 4, 2017 Share Posted December 4, 2017 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. Quote Link to comment Share on other sites More sharing options...
Will! Posted December 4, 2017 Author Share Posted December 4, 2017 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. Quote Link to comment Share on other sites More sharing options...
BorrowToLeech Posted December 4, 2017 Share Posted December 4, 2017 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? Quote Link to comment Share on other sites More sharing options...
hurlerontheditch Posted September 1, 2021 Share Posted September 1, 2021 Quote Rishi Sunak told to close loophole helping people avoid inheritance and capital gains tax Rishi Sunak told to close loophole helping people avoid inheritance and capital gains tax (msn.com) Quote Link to comment Share on other sites More sharing options...
Pop321 Posted September 1, 2021 Share Posted September 1, 2021 2 hours ago, hurlerontheditch said: Rishi Sunak told to close loophole helping people avoid inheritance and capital gains tax (msn.com) Nice article. CGT is a funny tax. For stocks and shares it is almost completely avoidable via ISA or by selling each year (ie regular trading). Property is one of the few things where you can’t ‘sell a bit of it off’ so it will be interesting to see how this develops. One problem is housing is a need and increasing CGT may well stop some investors selling. Ie avoid the tax by not selling. In terms of the article though I like the thrust of trying to stop using IHT to avoid CGT. Just a minor point: "There would be a big impact on landlords for example, people who have second properties. "At the moment capital gains tax is charged at 10 percent or 20 percent depending on whether you are a lower rate or higher rate taxpayer. "If this was aligned with income tax, you would be looking at a tax rate of 20 percent, 40 percent or even 45 percent.” Nearly true, property CGT isn’t 10pc or 20pc rather for residential property it is 18% or 28%. So there will be an impact on LLs absolutely….but a ‘bigger’ impact on those who pay a lower CGT rate. Quote Link to comment Share on other sites More sharing options...
Locke Posted September 1, 2021 Share Posted September 1, 2021 I know it's a necro, but it's amazing how the same fallacies continue for so long. You cannot cannot cannot "put money into" anything at all. When you buy a property, someone else is getting your cash. You have not put any money into property. You have traded one asset for another. Quote Link to comment Share on other sites More sharing options...
Fromage Frais Posted September 1, 2021 Share Posted September 1, 2021 (edited) On 03/12/2017 at 23:01, Will! said: I've just been reading this: Surplus Energy Economics: The reality behind Britain's "Productivity Puzzle" 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? The elephant in the room there is PRR. A key buyer around here is small builders who are v busy working on their own side projects which is logical. They are willing to pay more as they can bag a tax free profit and list for more speculative asking prices. Why do 200 work when you can buy a meh bungalow for 275 and tart it up with some high roof windows and list it for 1 million £. Potentially (unlikely here) 500k+ tax free profit. https://www.rightmove.co.uk/properties/112721969#/?channel=RES_BUY There are now so many of these hanging about maybe not as extreme as this example which is silly as you can still get a nice big house for a million in Norwich in a better location. Around here if that loophole is closed then the market would be much healthier. Edited September 1, 2021 by Fromage Frais Quote Link to comment Share on other sites More sharing options...
Fromage Frais Posted September 1, 2021 Share Posted September 1, 2021 (edited) On 04/12/2017 at 12:48, Wayward said: 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. Its actually even worse than that. Many wealthy folk i know are both rich and mega in debt. Being rich means access to even cheaper IO debt which in turn means you can buy assets for a better return which then feeds back. When you have 1 million you want ten million, when you have 100 you want to be a billionaire. You will have a private banker who will be giving you lots of love and constantly selling you products and instruments to make you more money and avoid tax. Buy > borrow > revalue > buy > borrow Why pay tax when you can borrow money for next to nothing tax deduct it and buy some more stuff. This is why the prudent will be shafted as soon as the rates go up to say 3% (if they ever do) then this wealth creating machine will go into reverse. All the money for the NHS and refugees folk are wanting ....... just wont be there it will be all sucked into a black hole and the government will agin be in the same position as before needing to bail out the casino. The folks picking up the tab will be mugs like us with savings trying to play catchup and buy a house. Edited September 1, 2021 by Fromage Frais Quote Link to comment Share on other sites More sharing options...
Wayward Posted September 2, 2021 Share Posted September 2, 2021 On 01/09/2021 at 14:47, Fromage Frais said: Its actually even worse than that. Many wealthy folk i know are both rich and mega in debt. Being rich means access to even cheaper IO debt which in turn means you can buy assets for a better return which then feeds back. When you have 1 million you want ten million, when you have 100 you want to be a billionaire. You will have a private banker who will be giving you lots of love and constantly selling you products and instruments to make you more money and avoid tax. Buy > borrow > revalue > buy > borrow Why pay tax when you can borrow money for next to nothing tax deduct it and buy some more stuff. This is why the prudent will be shafted as soon as the rates go up to say 3% (if they ever do) then this wealth creating machine will go into reverse. All the money for the NHS and refugees folk are wanting ....... just wont be there it will be all sucked into a black hole and the government will agin be in the same position as before needing to bail out the casino. The folks picking up the tab will be mugs like us with savings trying to play catchup and buy a house. I made that comment 4 years ago when I thought things couldn't get any worse. But they do...wealth is on a six lane highway from the younger and poorer to the richer and older. I am thinking it's just a matter of time before I will think I am lucky to share one room with ten others and work two jobs to pay for it. Quote Link to comment Share on other sites More sharing options...
Unmoderated Posted September 2, 2021 Share Posted September 2, 2021 Roll all earnings in a year together. Capital Gains, Earnings Income, Inheritance and then give a slightly higher tax free limit and a few more bandings, remove the BS 100K to 125K zone with the tax free allowance being abated such that your marginal tax rate is just off the charts and job done. Insane that someone can sit around doing sweet FA all their lives and inherit a million quid and pay virtually no tax on it versus someone getting up every day adn earning £50K for twenty years. As for CGT and risk taking - the risk determines the potential reward. People make a loss, it's on them. People working for a living can't offset their actually costs of earning that money while someone self employed or paying to buy and sell things is able to have these taken into account. The people making big gains from CG or Inheritance actually should pay more given it's the stable legal and economic system that enables all of this to work in the first place. Quote Link to comment Share on other sites More sharing options...
Unmoderated Posted September 2, 2021 Share Posted September 2, 2021 (edited) On 01/09/2021 at 14:11, Locke said: I know it's a necro, but it's amazing how the same fallacies continue for so long. You cannot cannot cannot "put money into" anything at all. When you buy a property, someone else is getting your cash. You have not put any money into property. You have traded one asset for another. I've put money into a piggy bank and a stripper's thong. Edited September 2, 2021 by Unmoderated Quote Link to comment Share on other sites More sharing options...
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