A warning against Coalition policy on Capital Gains Tax
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Organising a coalition agreement is never easy. There has to be give and take on both sides. However, the Conservatives have made a big mistake in accepting some aspects of Lib Dem tax policy – especially in the area of Capital Gains Tax (CGT). The tax is seriously misconceived and raises little revenue. It can, however, do much economic harm.
It is likely that there will be exemptions for so-called business assets and for business activities that the government regards as entrepreneurial. But these distinctions are arbitrary. If I had invested in Microsoft shares when it was a small fledgling company, why should that investment be treated differently from the investments of an owner-entrepreneur? Like Inheritance Tax, CGT will create an industry of avoidance techniques and spurious business capital structures that are simply designed to avoid the tax. Nice work for tax lawyers.
But the really pernicious aspect of CGT is that it is generally a double tax…
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It will complicate our tax system still further, which we really don’t need; and as Philip says it is unlikely to raise significant revenue (net of all costs).
The news that the Retail Prices Index rose at an annual rate of 5.3 per cent last month also draws attention to the unfairness of such a hefty increase in the rate of capital gains tax if it doesn’t somehow allow for inflation. (It is worth noting that an annual rate of inflation of 5.3 per cent is actually LESS than the average annual rate of increase in the Retail Prices Index since the modern series began in June 1947.)
Indexation by the RPI is one solution; or tapering over time is another (perhaps simpler, if cruder).