The Lemon Fool

What do people think Sunak will do about CGT?

There are these stories about aligning it with income tax but then you would have to have some allowance for inflation which would be complicated as you would probably have to allow inflation since the asset was purchased?

Or perhaps some sort of taper relief depending on how long you have held the asset. But that also becomes complicated when an asset has been built up with a series of acquisitions or costs.

There are reports that when Osborne looked into this the Treasury reckoned that 28% was the highest effective rate. A higher rate would result in lower revenue as people would sell fewer assets.

Perhaps all these rumours are a cunning plan to raise tax as people realise pregnant gains only to find Sunak leaves everything as it is!

One thing is for sure. I can't see the rate ever being lower than 20% even though it is partly a tax on inflation.

It sounds like a sort of consultation going on rather than formal proposals.

scrumpyjack wrote:What do people think Sunak will do about CGT?

One thing is for sure. I can't see the rate ever being lower than 20% even though it is partly a tax on inflation.

I assume you are referring to CGT.......it is already less than 20%.......it's as low as 18% for property.

richlist wrote:

scrumpyjack wrote:What do people think Sunak will do about CGT?

One thing is for sure. I can't see the rate ever being lower than 20% even though it is partly a tax on inflation.

I assume you are referring to CGT.......it is already less than 20%.......it's as low as 18% for property.

It's as low as 10percent for shares.

scrumpyjack wrote:but then you would have to have some allowance for inflation which would be complicated as you would probably have to allow inflation since the asset was purchased?

That was scrapped years ago. No chance of its coming back, especially when inflation is targeted as 2%. And it was complicated.

It makes sense to align CGT with income tax at 20% (or 10% perhaps?) for basic rate payers. All sorts of 'fiddles' go on to take income as a capital gain. e.g cos. buy back own shares instead of paying dividends. When the shares are sold the money is treated as income by the seller. And there is already a link between CGT and income tax, as the capital gain can push one into a higher tax bracket. Simplification, if it happens, would be welcome.
Personally, I'd increase the tax-empt gain to, say. £20,000 and then just add the capital gain to income tax. Much simpler and clearer.

As most people don't have assets attracting capital gain, you couldn't just combine the allowances without a huge drop in tax take. And while you'd need a very large non-sheltered share portfolio to exceed the current CGT rules if you are careful to dispose of some fraction each year, buy-to-let, the other common investment route is hit badly by CGT rules when the monolithic asset is disposed of.

Having a £6k CGT allowance which can roll-over from year to year would allow an unsheltered portfolio of £200k of shares or property growing at 1% over 2% inflation to be tax free. a 20% tax rate across the board to allign with income tax seems sensible to me.

Nocton wrote:It makes sense to align CGT with income tax at 20% (or 10% perhaps?) for basic rate payers. All sorts of 'fiddles' go on to take income as a capital gain. e.g cos. buy back own shares instead of paying dividends. When the shares are sold the money is treated as income by the seller. And there is already a link between CGT and income tax, as the capital gain can push one into a higher tax bracket. Simplification, if it happens, would be welcome.
Personally, I'd increase the tax-empt gain to, say. £20,000 and then just add the capital gain to income tax. Much simpler and clearer.

Not a new idea. Lawson's '88 Budget brought significant change with capital gains being taxable at IT rates - HR was at 40% and SR at 25%.

Darling scrapped that along with Brown's '98 Taper Relief so short-term speculation was rewarded rather than 'long term' investment which Brown had said Taper Relief was intended to explicitly reward (but the initial 'long term' of 4 years had already been cut to just 2 years before Darling abandoned any pretence in the matter. Business assets and non-business assets (definitions varied over time) had received different taper treatments and companies retained indexation instead of CGT's taper relief. I don't know where 'simplification' is supposed to get a look-in.

Cheers!

The CGT rules have been changed so many times. It's ridiculous.

bluedonkey wrote:The CGT rules have been changed so many times. It's ridiculous.

CGT as a tax concept would work best if the currency was stable. In other words there wasn't a Government seeking to making prices increase by 2% every year. Once you have this, all sorts of hacks and fudges are needed and have been tried over the years to avoid taxation of gains that are phantoms in terns of relative purchasing power between acquisition and disposal. Indexation could be supposed to be the theoretically best approach, but runs into complex record keeping requirements, particularly as with shares when an asset can be both bought and sold in small quantities.

Another saver and taxpayer hostile approach would be to expect collectives to perform a look through. In other words where an asset is sold by fund managers, the gain component is identified and divided up over all unit or share holders. This then has to be reported by by the fund to individual tax payers to enable them to report in turn as part of an end of year tax return. That's my understanding of the USA approach for domestic taxpayers.

A variant on that theme would be "deemed disposal". In other words a tax charge is levied on part of the unrealised gains to a taxpayer of a holding in collective investments. The principle being that if the assets had been held directly, sales may have given rise to realised capital gains rather than being hidden in the fund price.

We don't levy CGT on trades within funds and Investment trusts but only on disposals of shares in the IT or fund. That seems fair and simple.
If one wants to have a higher rate of CGT but make some allowance for inflation, the simplest approach would be taper relief based on how long you have held the asset but the length of time, for shares at least, would be the last acquisition. That would be simple and avoid the complications of multiple purchases of the same share and it would be up to the shareholder not to be silly enough to lose taper relief by buying more of a share he/she already held.

As I recall the current nominally low rate of 20% was introduced when indexation was abolished so was clearly intended to reflect the absence of allowing for inflation.

If the aim is to maximise the tax take for the IR, I should think it best to leave the current system unchanged. Laffer curve and all that!
Floating the idea of higher rates is a good way of encouraging disposals before the budget and increasing this year's CGT revenue.

scrumpyjack wrote:We don't levy CGT on trades within funds and Investment trusts but only on disposals of shares in the IT or fund. That seems fair and simple.
If one wants to have a higher rate of CGT but make some allowance for inflation, the simplest approach would be taper relief based on how long you have held the asset but the length of time, for shares at least, would be the last acquisition. That would be simple and avoid the complications of multiple purchases of the same share and it would be up to the shareholder not to be silly enough to lose taper relief by buying more of a share he/she already held.

As I recall the current nominally low rate of 20% was introduced when indexation was abolished so was clearly intended to reflect the absence of allowing for inflation.

If the aim is to maximise the tax take for the IR, I should think it best to leave the current system unchanged. Laffer curve and all that!
Floating the idea of higher rates is a good way of encouraging disposals before the budget and increasing this year's CGT revenue.

The current nominally low rate is 10% if you are a basic rate tax payer until you have filled your basic rate band and then 20% and as CGT is a reserved matter the income tax bands used in the calculation are the English ones even if you live in Scotland. At least that's how it was calculated on my tax return for 18/19 done last December (due to an unexpected capital gain that I was unable to mitigate). First time I've done a tax return this century and looks like I'll have to do another one this year even though I have no gains this year and am a basic rate taxpayer.