Capital gains tax and goldfish
Posted by Christie Malry on May 20, 2010 at 10:08 am
Goldfish have a pretty bad reputation as animals go. It's commonly held that goldfish have no memory at all and therefore treat every experience as if it were their first. Perhaps if you live in a plain bowl, that's a good thing. Of course, like most perceived wisdom, it's false - goldfish actually have much better memories.
Perhaps then, they might care to help out Tory backbenchers, who seem to be having a goldfish moment. They're up in arms at the very idea of increasing the rate of capital gains tax (CGT) from its current 18% to 40% or even 50%.
Do you think they've forgotten that CGT used to be set at the marginal rate of income tax? Assets that were held for more than just short-term trading qualified for taper relief, meaning that CGT could be as low as 10%. Then private equity hit. People didn't much care for billionaire private equity bosses paying only 10% tax, so Gordon Brown swept away the taper relief regime and replaced it with a flat CGT rate of 18%. As a special benefit for retiring entrepreneurs, gains on sales of businesses less than £1m still qualify for the 10% rate.
For people holding assets long term, Brown's changes were bad news - they meant an increase in tax of some 80%. Also, asset prices were no longer indexed to strip out inflation, meaning that individuals will in future pay tax in inflation gains, which seems grossly unfair. Conversely, for people who speculate, the changes were brilliant - they now paid 18% instead of perhaps as much as 40%.
There's no reason why the taper relief regime and inflation indexing couldn't be brought back. These changes would mitigate a lot of the problems of a higher tax rate. The system wouldn't be perfect, but it would be a lot better than ignoring taper relief and inflation altogether. Can't we have this debate? Or have the Tory backbenchers really forgotten how we used to do things in the past?
[...] with more short term memory than the proverbial goldfish might remember the issue of single status. Single status was a programme, instituted by the [...]