Responding to proposals by the Office of Tax Simplification (OTS) to raise Capital Gains Tax (CGT) rates to bring them in line with income tax, IEA Senior Academic Fellow Professor Philip Booth said:

“It is a fundamental error and misunderstanding of the principles of taxation to suggest that the rates of Capital Gains Tax and income tax should be aligned.

“Capital Gains Tax is often a ‘double tax’. For example, when share prices increase because investors anticipate higher future profits, Capital Gains Tax is charged when the asset is sold and then when higher profits are themselves taxed. The same happens when companies retain profits.

“Instead, the Treasury could look hard at the OTS’s second option – ensuring that income and profits are not disguised as capital gains and thus taxed at lower rates. It could also look at those economic activities which manage to fall outside the tax system altogether.

“Capital Gains Tax is a highly damaging tax; raising rates would be a serious mistake and create more economic damage.”

ENDS

Notes to editors

For media enquiries, please contact Emily Carver, Head of Media, on 07715942731 or ecarver@iea.org.uk.

Professor Philip Booth is available for interview and further comment.

For further IEA reading on Capital Gains Tax click here.

You can read IEA report ‘Taxation, Government Spending & Economic Growth’ here.

The mission of the Institute of Economic Affairs is to improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markets in solving economic and social problems. The IEA is a registered educational charity and independent of all political parties.