10% CGT rate.

ColdIron

Capital gains are very different to income. The 'income' isn't always accrued annually. Many investments can take quite a long time to come to fruition, perhaps running at a capital loss for several years until a large spike/profit over a short period. Of course it may turn out to be a lemon and not happen at all. Due to the lumpy nature of capital gains an annual levy isn't an appropriate mechanism

There needs to be an incentive for investors to put their capital at risk for extended periods. We seem to be betting the farm on 'growth'. Where does that come from with a punitive tax regime?

CKhalvashi

talexuser said:

I would have thought taxing offshore investment would be the first thing to do for a patriotic government wishing investment in the UK? 

Overseas investments already are taxed at the same rate as domestic investments, although there is often a foreign tax credit if applicable. 

Stopping British businesses from expanding overseas wouldn't be a viable option and would likely cost more than it gains. Remember that most of the profits are likely ultimately repatriated to the UK.

CKhalvashi

CKhalvashi said:

talexuser said:

I would have thought taxing offshore investment would be the first thing to do for a patriotic government wishing investment in the UK? 

Overseas investments already are taxed at the same rate as domestic investments, although there is often a foreign tax credit if applicable. 

Stopping British businesses from expanding overseas wouldn't be a viable option and would likely cost more than it gains. Remember that most of the profits are likely ultimately repatriated to the UK.

Knowing it's bad etiquette to quote oneself, one potentially easy additional tax to take that would probably be domestically popular may be a basic rate tax for non-residents on dividends at the 7.5% mark.

I don't have ready statistics for the amount of dividends repatriated overseas annually, but in general this would be reduced to about 5% under most DTTs anyway should certain conditions be met.

It will also be offsettable against most taxes abroad and an increasing number of countries do operate with such taxes. As I can see, the UK is an outlier in not doing this.

dharm999

Starter has now twice refused to say if Labour will raise CGT, so I suspect it’s on their radar to up it.  As to what it goes up to, who knows, but equalising it with income tax rates seems like the easy option

masonic

CKhalvashi said:

CKhalvashi said:

talexuser said:

I would have thought taxing offshore investment would be the first thing to do for a patriotic government wishing investment in the UK? 

Overseas investments already are taxed at the same rate as domestic investments, although there is often a foreign tax credit if applicable. 

Stopping British businesses from expanding overseas wouldn't be a viable option and would likely cost more than it gains. Remember that most of the profits are likely ultimately repatriated to the UK.

Knowing it's bad etiquette to quote oneself, one potentially easy additional tax to take that would probably be domestically popular may be a basic rate tax for non-residents on dividends at the 7.5% mark.

I don't have ready statistics for the amount of dividends repatriated overseas annually, but in general this would be reduced to about 5% under most DTTs anyway should certain conditions be met.

It will also be offsettable against most taxes abroad and an increasing number of countries do operate with such taxes. As I can see, the UK is an outlier in not doing this.

Presumably London listed ETFs domiciled in Ireland and Luxembourg held by UK residents would be seen to be repatriating dividends overseas, even if they were paid straight back to their investors in the UK. So such a move might change some behaviour amongst UK investors.

phlebas192

Hoenir said:

No reason why capital gains shouldn't be treated any differently to income. Bring them into line. Simplfying the tax  system is beneficial to all. 

I mostly agree with you, but only if capital gains are assessed after allowing for inflation. This used to be the case back in the 80s but it can't really be claimed to be a simplification compared to the current system. If indexation isn't allowed then it means being taxed just for owning something rather than making a profit in real terms (that is currently the case but the lower tax rate mitigates the impact).

Rollinghome

phlebas192 said:

Hoenir said:

No reason why capital gains shouldn't be treated any differently to income. Bring them into line. Simplfying the tax  system is beneficial to all. 

I mostly agree with you, but only if capital gains are assessed after allowing for inflation. This used to be the case back in the 80s but it can't really be claimed to be a simplification compared to the current system. If indexation isn't allowed then it means being taxed just for owning something rather than making a profit in real terms (that is currently the case but the lower tax rate mitigates the impact).

I fully agree, but then interest on cash is taxed regardless of any real return, even if the rate received is 4% and inflation 10%.  Interesting that so many people seem happier with that arrangement than with interest at say 1% and inflation at 2%.  

Being able to get a real positive return on cash as we currently can, with care and if you agree with the stats, is an unfamiliar experience.

CKhalvashi

masonic said:

CKhalvashi said:

CKhalvashi said:

talexuser said:

I would have thought taxing offshore investment would be the first thing to do for a patriotic government wishing investment in the UK? 

Overseas investments already are taxed at the same rate as domestic investments, although there is often a foreign tax credit if applicable. 

Stopping British businesses from expanding overseas wouldn't be a viable option and would likely cost more than it gains. Remember that most of the profits are likely ultimately repatriated to the UK.

Knowing it's bad etiquette to quote oneself, one potentially easy additional tax to take that would probably be domestically popular may be a basic rate tax for non-residents on dividends at the 7.5% mark.

I don't have ready statistics for the amount of dividends repatriated overseas annually, but in general this would be reduced to about 5% under most DTTs anyway should certain conditions be met.

It will also be offsettable against most taxes abroad and an increasing number of countries do operate with such taxes. As I can see, the UK is an outlier in not doing this.

Presumably London listed ETFs domiciled in Ireland and Luxembourg held by UK residents would be seen to be repatriating dividends overseas, even if they were paid straight back to their investors in the UK. So such a move might change some behaviour amongst UK investors.

Very true, and an investment position I hadn't considered.

This is far too complex for 'back of a fag packet' calculations in any event, as you've highlighted

Rollinghome said:

phlebas192 said:

Hoenir said:

No reason why capital gains shouldn't be treated any differently to income. Bring them into line. Simplfying the tax  system is beneficial to all. 

I mostly agree with you, but only if capital gains are assessed after allowing for inflation. This used to be the case back in the 80s but it can't really be claimed to be a simplification compared to the current system. If indexation isn't allowed then it means being taxed just for owning something rather than making a profit in real terms (that is currently the case but the lower tax rate mitigates the impact).

I fully agree, but then interest on cash is taxed regardless of any real return, even if the rate received is 4% and inflation 10%.  Interesting that so many people seem happier with that arrangement than with interest at say 1% and inflation at 2%.  

Being able to get a real positive return on cash as we currently can, with care and if you agree with the stats, is an unfamiliar experience.

Interest income for the most part is quite safe, especially as bank investments or gilts etc. Corporate bonds have a higher risk, but will still be paid out before equity investors.

Equity investments are inherently risky in nature however as well as having higher potential rewards in general will also have a much larger overall economic impact. That economic impact goes to pay tax which funds further infrastructure.

As a group of SMEs we definitely aren't traditional in how we invest, however in general for a reasonably established investment I'd expect to see a mix of cash return and growth annually at about 25% to offset what we lose money on (and these are much higher risk than exchange-listed shares). For startup investments (which I've only once invested in outside of something I've spent months working on before) much higher realistic returns are required in percentage terms to make the risk worthwhile. The same is for turnaround, which is something I've dabbled in, but only as a bolt on.

A multi-band tax based on income tax wouldn't encourage the risks in the real world, largely as any return typically comes in one year, which would increase effective taxes from 10% to in many cases even with small businesses from startup (or even with inflationary growth over a typical 20 year ownership lifespan) to 45%. This also won't encourage long term growth and innovation, which in a modern world is something any country needs.

EthicsGradient

The Lib Dem proposal for CGT - no that it matters in itself, but it gives an indication of thinking that Labour might consider too:

The party will say that those on lower incomes would be protected by an increase in the annual tax-free CGT allowance to £5,000, up from £3,000 in the current tax year. The proposed new system would be adjusted for inflation and there would be a targeted relief system devised for small businesses.
...
The Lib Dem proposal would create three bands to be applied to taxable gains at different rates: gains between £5,000 and £50,000 taxed 20%; those between £50,000 and £100,000 taxed at 40% and those over £100,000 at 45%.

Lib Dems to promise overhaul of capital gains tax to raise £5bn for NHS | Liberal Democrats | The Guardian

So it would be somewhat similar to making it the same as the income tax rates, but it has its own bands, rather than being combined with income. This might mean no practical difference to many people who are already higher rate payers due to income, and who take gains that are not huge in one year. It might even mean some pay 20% rather than 24% on property:

The rate would be based entirely on gains, whereas at the moment it is based on tax bands and nature of the gains.
For example, basic rate taxpayers pay 10pc on shares and 18pc on second properties, compared to 20pc and 24pc for higher rate taxpayers.

Lib Dems plot to double capital gains tax for highest earners (yahoo.com)

poseidon1

Ultimately pointless speculating what a future government would do to CGT, since it has been the subject of extreme changes from both the major parties over the last few decades. For 28 years from its inception in 1965 it was fixed at 30%

Thereafter, It has been as high as 40% ( courtesy of Nigel Lawson ) , and as low as as 10% for basic rate taxpayers as well as a  special 10% rate reserved for people selling qualifying private businesses.

Add in the fact it is one of the lowest annual contributors to the Exchequer ( lower than IHT which itself is less than 1% of the annual take ) , debates about CGT tend to be a lot of 'sound and fury ' signifying very little.

That said, when the Tories announced halving of the CGT allowance to £3000, I was the first to recommend friends and relatives realise gains in 2023/24 to mitigate their future tax exposure.