Friday, 28 May 2010

Capital Gains Tax up: Where are the cuts?

Now, I have read John Redwood's letter to the treasury on Capital Gains Tax and it makes a lot of sense, as per usual from John Redwood. His basic idea is that we up the rate for CGT, but not for investments then cut that for investments of a year or more.

However, when it comes to shareholding I don't think this makes the slightest bit of difference to FTSE companies. Whether you hold Aviva for a year or more does not help Aviva in our wild markets. They are far more dependent on bank finance which is another issue altogether. Similarly speculative punts on AIM shares are not made the better for sealing them in for the long-term. In fact, selling on bad news is crucial to preserving your wealth in this way.

Also, Vince Cable, wrong on so many issues and not long for the Government I imagine, has a point about people using Capital gains to shelter from income tax. All in all, it should be equalised, but indexed so that you don't pay tax on gains made only due to inflation.

There I said it. There is though a massive quid pro quo. CGT will raise about another £2 billion in tax. This means we need another £8 billion in spending cuts to keep the 80:20 ratio. The Budget needs to identify these cuts.

My biggest fear is that the Government will shy from large cuts and instead content itself with raising taxes. I can see £25-50 billion of tax rises and then another similar amount of cuts to achieve the deficit target.

Back to John Redwood, in the above environment you can forget an entrepreneurial led expansion of the UK Economy with that weight of tax burden on this.


Anonymous said...

The not-so-subtle subtext being of course "DON'T TAX OUR SECOND HOMES AND BUY-TO-LET PROPERTIES!".

Is it really so unreasonable that people should be charged the normal rate of tax for unearned gains on assets?


Sebastian Weetabix said...

Lots of London TV/journalist types have second homes, don't they? No wonder they don't like it. Buy-to-let owners do little good for the economy so they can damn well pay 40% CGT as far as I am concerned. It's not the same as being a real entrepreneur, and it distorted the housing market.

Guido Fawkes said...

Shocked at this quasi-socialist crap.

What have you done with the capitalists who ran this blog?

Thud said...

Try renovating a house in a marginal area and then tell me it is money for old rope,factor in employing tradesmen etc and buy to let is just as'honest' an affair as any other...I'm with Guido on this.

Electro-Kevin said...

I'm with Thud. Though I'd like to see entrepreneurs preoccupied with things other than property.

You're absolutely right, CU. Where is the quid pro quo on this ? The assurance - backed up by action - that for higher taxes our country will be saved from the dead hand of socialism and EU interference.

Steven_L said...

I'm liking the debate. My only request is that we all ostricise labour from it for a year.

lilith said...

Buy to let money for old rope? I guess it might be for some. Keeping my own house in a habitable condition is hard enough without worrying about second or third properties to maintain. Then you have all those lovely tennants who hang onto their housing benefit instead of paying rent. Nah, being a landlord should be reserved for the super, super rich, not for the middle classes wanting a secure pension.

Anonymous said...

Shocked at this quasi-socialist crap.

Try renovating a house in a marginal area and then tell me it is money for old rope,factor in employing tradesmen etc and buy to let is just as'honest' an affair as any other...I'm with Guido on this.

Oh that's rich - second home owners complaining that the government is getting in the way of the market doing its work.

If the market had "been allowed to do its work" by the Labour government, your second homes would now be worth less than 50% of their current optimistically priced worth. That's after factoring in the keyworker schemes, the homebuy scheme, the special liquidity scheme, the CGT bung, the bank buyout scheme ... etc .... etc .. (ad infinitum)

Socialism for yourself, capitalism for everyone else eh? Did you really think we wouldn't see straight through that?

Thud said...

Anon...more socialist crap and envy too...a nice mix.For many yield is the attraction and valuation a secondary concern.

lilith said...

That's right Thud. Nobody should have savings or investments. It's just not fair.

CityUnslicker said...

Hard times hard choices. Sadly I doubt the cuts so the tax raising is socialist and not fiscally conservative.