≡ Menu

Weekend reading: First they came for the capital gains…

Weekend reading logo

What caught my eye this week.

This week we’ve been served notice that serious hikes to capital gains tax could be coming.

The Guardian reports:

A tax raid on buy-to-let properties and other forms of wealth could raise up to £14bn to help repair the government’s battered finances, after a report commissioned by the chancellor recommended a major overhaul of capital gains tax.

Flagging a tax squeeze on the well-off to help pay for coronavirus, the maximum capital gains tax (CGT) rate of 28% could be raised by Rishi Sunak closer to income tax rates, where the top rates are 40% and 45% in England and Wales.

Under the proposals, there could also be deep cuts in the profits that share investors can make without paying tax, and other technical adjustments that could, in effect, push up inheritance tax bills.

For more on the specifics of the report by the Office for Tax Simplification – which cynics might argue is starting to sound like Orwell’s Ministry of Peace –  check out the deep article over at ThisIsMoney. It goes into many of the potential impacts to capital gains tax rates, inheritance taxes, and more.

Gain stage

It’s the nature of tax hikes that people tend to think they’re fine if they believe they’ll never be hit by them.

Whereas of course those tax changes that paint a target on their backs are seen as grossly unfair…

And I am only human.

A little over a decade ago now, I exited a startup company that I’d co-founded. We had some disagreements about its future direction, and I left with roughly the money I’d put in – a few tens of thousands of pounds.

Sounds like a nice lump sum but keep in mind I was mostly just getting the big proportion of my savings that I’d invested (and risked) back, with any additional money hardly covering the income I’d forgone for two years.

I couldn’t put all this into ISAs at once due to the annual allowance. Pensions were different in those days, and looked unattractive to me.

Perhaps I should have spent it all on wine, women, and song? Or put it all into buying a home to live in where it would grow untroubled by the taxman for life.

That’s something nearly everyone with any money thinks is fair, incidentally, but which makes it even harder to keep up if you’re not a homeowner…

In the end I decided to risk investing it in a bunch of share picks outside of tax shelters. This compounded a paperwork issue I already had from previous investments outside of ISAs, but I thought it was worth the hassle and risk if I could hold for the long-term.

This tranche of investments did very well. We’re talking multi-bagging gains in just a few years. Outside of tax shelters.

I’ve managed to carefully defuse some of the gains over the years, but other holdings have continued to grow.

The result is I still have six-figures in capital gains, should I have to sell.

My plan had been to use my annual CGT allowance every year. The money raised would go towards my ISA allowance. I am not and mostly never have been a super high earner. And since I bought my flat I’ve never been over-blessed with free cash to top my ISA up with.

Obviously my plan may have to change if the CGT allowance is reduced or scrapped altogether, or if the rate is hiked.

Zero logic

Now many of you will say “so what?” This wasn’t money I earned by the sweat of my brow.

That’s a coherent argument.

However it’s not an argument that many people seem to apply to the giant windfalls people get when they inherit.

I do and would hike inheritance tax to the max, because the recipient literally did nothing to earn it. They didn’t even forego consumption or take a risk.

But no need to reply in anger. I know most of you disagree!

Proponents of CGT hikes also tend to muddle different things together. So they will talk about a high-earner with cunningly structured finances paying a far lower tax rate then their cleaner, 10% say, and then argue in the same breath that CGT rates should be hiked and the ‘distorting’ annual allowance should be scrapped.

But that 10% tax rate is due to entrepreneur’s relief, not standard CGT. And enabling somebody to realize a little over £12,000 in capital gains from their investments (which may have taken many years to build up) is hardly what enables the big swinging dicks of Canary Wharf to bring home their millions at a lower tax rate, if that’s the complaint.

As for distorting behaviour – the mooted changes will only make this worse. People will hang on to assets that they might otherwise have disposed of, simply to avoid the tax charge.

Perhaps you believe this is all good if you see longer-term ownership as a virtue in itself (I’m unconvinced) but it’s undeniable that it stops people freely juggling their assets to suit their circumstances, or their views about valuation.

Scrapping CGT altogether – for a 0% capital gains tax rate, as enjoyed by radical countries such as New Zealand and Switzerland1 – would surely make more sense from a simplification perspective.

Finally, you might say I don’t deserve my six-figure capital gain because it doesn’t amount to any social good.

But if that’s true (I’d debate it) then that’s true of all our investments.

What’s more, is a CEO on several million pounds a year contributing to the social good?

Heck, is a software engineer perfecting ever more pernicious Internet advertising doing so?

Why not increase tax rates on all incomes we consider socially useless?

Why not indeed.2

You can pay your own way

There’s no doubt that the Covid-19 pandemic and to some extent our chosen response to it has left the State’s finances in a hole.

(I believe it also means we can expect the low interest rates that make that debt manageable to last for years. Probably decades.)

I’ve been warning about this growing bill from day one, even as some others have retorted that we should lockdown and lockdown again, with apparently scant concern for the consequences, financial or otherwise. (Any debate on Covid over on this thread only please.)

But regardless, the mooted £14bn is neither here nor there in the grand scheme of things – assuming it is even recoverable without people changing their behaviour.

If we are going to reform taxes, let’s do it properly.

It’s high time we created a tax system that makes logical sense across the board. We should scrap fiddly income tax bands and cliffs, get rid of tons of exemptions, simplify and massively expand inheritance taxes (I’d do this by taxing recipients rather than the estate) and much more.

In practice though I’m sure we’ll do what we’ve mostly always done – which is whatever politicians can get through the Overton Window.

Okay, the cat has seen the pigeons. Let’s hear what you think, enjoy the links, and have a great weekend!

From Monevator

Stress management – Monevator

Are retail share dealing platforms fit for purpose? – Monevator

From the archive-ator: Not your father’s retirement – Monevator

News

Note: Some links are Google search results – in PC/desktop view you can click to read the piece without being a paid subscriber. Try privacy/incognito mode to avoid cookies. Consider subscribing if you read them a lot!3

London rents fall 5% amid exodus of workers – ThisIsMoney

New government unit to pay back over £100m in underpaid state pensions to short-changed women – Which

The Law Commission has published a paper on the legal uncertainties of owning shares, bonds, and funds via intermediaries – Law Commission

Investment sites hit by trading outages after positive vaccine news – ThisIsMoney

Are big retailers exploiting lockdown loopholes? [Maybe, but it’s helpful]BBC

The global rich are rushing to buy UK country estates – Bloomberg via MSN

The FT is hosting a digital discussion on retirement on 30 November with Sir Steven Webb – Sign up at the FT

 

Vaccine Monday’s FANG rout doesn’t make a market revolution – Bloomberg

Products and services

Coventry’s new three-year Poppy Bond to pay savers 0.85%, the lowest yet – ThisIsMoney

We both get £50 to invest at Seedrs if you sign-up via my link and invest £500 in 30 days – Seedrs

Tesco says sorry for online Christmas delivery queues – Guardian

Zopa has launched an app-based travel credit card – Which

When you switch your ISA to Interactive Investor you can get £100 cashback – Interactive Investor [Affiliate link]

Investment trusts stay on-course through the pandemic [Search result]FT

From dry pasta to cardboard coffins: when to buy basic – Guardian

Homes for sale featured in TV and films, with pictures – Guardian

Comment and opinion

Dear valued client – The Evidence-based Investor

Active managers struggle to prove their worth in a turbulent year [Search result]FT

The post-pandemic trade – A Wealth of Common Sense

That sinking feeling – Humble Dollar

Lars Kroijer’s Investing Demystified in video format [Video]YouTube

Shadow trade – Indeedably

My first word: more – Living with Money

London ranks sixth among cities globally for ultra-high net worth individuals – Visual Capitalist

On paying for an arts education – Simple Living in Somerset

Solving the retirement equation [Podcast/transcript, two weeks old]Rational Reminder (via Abnormal Returns)

Naughty corner: Active antics

Which US stocks are most sensitive to Covid? [Heatmap]Reasonable Deviations

Horses for course: Large cap growth won’t keep winning in all markets – Verdad

International Biotechnology Trust: bypassing binary bets – IT Investor

Has the coronavirus affected correlation? – Morningstar

Covid and politics

(Any debate on Covid on this thread only please. Replies on today’s post will be deleted, for the good of financial discussion.)

Covid-19 statistics for the UK and beyond – BBC

The R number for the UK is down to 1.0 to 1.2 – UK Gov

Speculation about a second England-wide lockdown may have caused infection spike, say scientists – Sky

Covid-19 vaccine will not mean end of the pandemic, expert warns – AP via Belfast Telegraph

US hospitalizations for Covid are at an all-time high – The Atlantic

Inside the hunt for a vaccine: how BioNTech made the breakthrough [Search result]FT

Global perspective of COVID‐19 epidemiology for a full‐cycle pandemic [Research]John Ioannidis

Elon Musk was tested four times for Covid in a day, with contradictory results – via Twitter

Canada woos Hong Kong students as China imposes new security law – Reuters

Marina Hyde: Now what does Giuliani’s Four Seasons Total Landscaping farce remind me of? – Guardian

Why Trump’s lawsuits are unlikely to change the outcome of the election – Reuters

Boris Johnson expels top advisor Dominic Cummings – BBC (and Twitter!)

Kindle book bargains

You don’t have a Kindle? Get one – they’re great and save a ton of space.

The Everything Store: Jeff Bezos and the Age of Amazon by Brad Stone – £0.99 on Kindle

Happy Money: The Japanese Art of Making Peace with Your Money by Ken Honda – £0.99 on Kindle

Secrets of the Millionaire Mind by T. Harv Eker – £1.99 on Kindle

The Finance Book: Understand the numbers by Stuart Warner – £4.19 on Kindle

Next-gen console war mini-special

Xbox Series X & S review: no-nonsense, next-generation gaming – Guardian

Playstation 5 review: fantastic new features and a revolutionary controller – Tech Radar

Off our beat

Elon Musk’s totally awful, batshit crazy, bonkers, exciting year – Vanity Fair

Please get your noise out of my ears [Podcast]Freakonomics

The English word that hasn’t changed meaning in 8,000 years – Nautilus

I’ve played Rimworld for 700 hours. I may never escape – Wired

Ghost kitchens are the future. But is that a good thing? – Eater

Nicest man in rock Dave Grohl meets young fan and drumming master – YouTube

And finally…

“The main problem in any democracy is that crowd-pleasers are generally brainless swine who can go out on a stage & whup their supporters into an orgiastic frenzy – then go back to the office & sell every one of the poor bastards down the tube for a nickel apiece.”
– Hunter S. Thompson, Fear and Loathing on the Campaign Trail

Like these links? Subscribe to get them every Friday!

  1. Essentially. Obviously there’s realms of tax minutia here as everywhere with tax. []
  2. Plenty of reasons! I am just extending the logic here. []
  3. Note some articles can only be accessed through the search results if you’re using PC/desktop view (from mobile/tablet view they bring up the firewall/subscription page). To circumvent, switch your mobile browser to use the desktop view. On Chrome for Android: press the menu button followed by “Request Desktop Site”. []
{ 104 comments… add one }
  • 1 Chiny November 14, 2020, 11:41 am

    A call for wacky taxes ? Us old dogs remember Selective Employment Tax, a tax on employment if you were not doing something useful (making exports when we worried about the balance of payments). It had the predictable effect and got scrapped sharply enough.

  • 2 jim November 14, 2020, 11:48 am

    The more they fiddle with the taxes the more complex they get. As rightly said also 14bn brings us no where near getting out of this hole. Radical overhaul would be great but I wouldn’t entrust it to this bunch of clowns. Wasn’t Rishi only bought in because he’d tow the line? Now I hear Javid in line for chief of staff. I can’t keep up…

    Anyway it may have already been asked but how did you colleagues in the start up do? Did your multi bagging investments outperform the start up?

  • 3 The Investor November 14, 2020, 11:49 am

    @Chiny — Eek, no, I am not calling for them, was just extending the argument. Will add a footnote.

  • 4 Dave November 14, 2020, 11:58 am

    Covid is going to cost us all a packet and cause annoyance to every aspect of lives for many years. Just consider yourself lucky you don’t have to deal with the Spanish tax system like I do. Here there is no CGT allowance, no ISA’s and the maximum you can pay into a pension is 8000 Euros/year. When you retire every cent is taxed at your marginal income tax rate. From 1000 miles away it looks like all the UK savings related allowances are less an incentive to invest and more a disguised subsidy to the finance industry.
    I’m with you on IHT. I like a big wodge of tax free cash as much as the next man, but if you are going to tax anyone, it might as well be dead people.

  • 5 Meatprice November 14, 2020, 12:01 pm

    The fairest changes to tax would be to remove primary residence capital gains tax. There is a philosophical argument to saying that an individuals children mean more than the average citizen and therefore an individual should have the right to endow their children with the wealth they have accrued/earned without the state confiscating those already taxed assets.

    It would be fairer and easier to move the tax earlier in the chain and remove primary residence capital gains tax relief. There really is no contribution to the economy when someone buys a house and it’s price rises largely through the actions (or inaction) of the state. It hugely exacerbates regional inequality and grants unfair wealth to individuals who have not taken risks/increased productivity/created a product/employed people e.t.c. Removing this relief would pretty much pay off the national debt over the next ten years.

  • 6 NewInvestor November 14, 2020, 12:18 pm

    Speaking of tax, how about paying an extra 5% on your income tax for the privilege of working from home? Deutsche Bank think it’s a good idea – I am sure they have no vested interest in this at all.
    https://www.theguardian.com/business/2020/nov/11/staff-who-work-from-home-after-pandemic-should-pay-more-tax

  • 7 Neverland November 14, 2020, 12:27 pm

    Be happy you have six figure gains to tax

    Last couple of posts on this blog have the self-indulgent whine of the Daily Telegraph personal finance section

    “Oh my so cheap it’s nearly free internet dealing platform collapsed because of demand on Monday”

    “Oh I might have to pay more tax on these huge gains I made on my shares because the government borrowed £400bn to support the economy”

    Next you will start posting about how *hard* it is to afford a second home or private school fees

  • 8 Whettam November 14, 2020, 12:45 pm

    I second the increase to inheritance tax, but my wife and I got married for this reason, no dependants. No taxable accounts so more relaxed about any changes to CGT, I have more in pensions and may hit the LTA, so think they should increase this allowance 😉

    I do think this is an area where its hard to be rational, because all of our vested interests, my frustration is the constant tinkering with rules.

    I think taxes are an area that even financial advisors seem to struggle with, I recently submitted my portfolio to investors chronicle for their portfolio clinic feature. One of the advisors questioned my plan to use tax free pension cash to then over time contribute to ISA’s:

    “Also, what is your rational for using tax-free cash to build up Isa reserves? Moving assets out of a Sipp into an Isa increases the amount of your estate that is eligible for inheritance tax. The choice of investments and the growth characteristics within Sipps and Isas are almost identical.”

    He seems to have missed the point that:
    (1) My wife and I have no dependants and don’t care therefore about inheritance tax
    (2) Pension withdrawals are taxed and ISA’s withdrawals are not? Therefore as I will be withdrawing more than the personal allowance, ISA income is “better” than pension income for us.

  • 9 Tony November 14, 2020, 1:39 pm

    I agree with you, let’s do a proper job on reforming taxes. Let’s hope they don’t bring this in, but I have a feeling we all know where things are going…

    On a related note did you see that Deutsche Bank (yes, they with rap sheet longer than your arm, and by their own admission Nazi collaborators) suggestion of a 5% tax on WFH? One of the weirdest suggestions I think I’ve ever heard of – it’s almost like taxing non-consumption, or an anti-environmental tax. The idea is that all you WFHers don’t consume as much (business suits, petrol, lattes, Pre sandwiches etc) and so should be jolly well taxed a lot more. Next their be suggesting people get taxed for not owning a BMW or taxing people who don’t take holidays, don’t smoke, or don’t drink booze. Really quite bizarre, but the mood music is clear – desperation.

    BTW based on experience the two areas that governments like to target are the easy ones – pensions and property. This often leads to unintended consequences though – help to buy – which actually helped push up house prices is one example.

    Stamp duty surcharge is another one that seemed like a good idea at the time, but does also have unintended consequences – take a foreign born nurse who inherits a small property back home – she’d be on the line for stamp duty surcharge if she ever moves beyond her first property (if she can afford one in the first place). It isn’t just “rich and evil” BTL landlords and oligarchs who are hit buy the surcharge.

    Meanwhile the FANG companies, Caffe Nero, etc. get away with paying as little tax as possible thanks to various loopholes and shenanigans, with offshore companies etc.

    Giving the track record of politicians, and especially one who, by recent accounts, is suffering from post-Covid brain fog, I am not holding my breath for anything sensible. Best advice – brace for impact…

  • 10 Al Cam November 14, 2020, 2:29 pm

    @Whettam:
    Somewhat surprised that you are surprised that FA’s may not up to the mark on tax matters. I suspect there are other areas where FA’s are also pretty poor too. Sounds to me like they completely failed to do/take note of the findings from any form of discovery with/about your situation. Call me a cynic, but OOI what did they try to sell you?

  • 11 Simon November 14, 2020, 2:41 pm

    The Deutsche Bank article was pure tripe and could be pulled apart in seconds with a bit of thinking. But what I found most disappointing was the journalism of the Guardian. There was no counter view provided, or discussion of any of the inconsistencies or shortfalls, just cut and paste the DB press release.

  • 12 Kript November 14, 2020, 2:43 pm

    Two links to Seedrs @TI? Seems an odd way to start monetising the site! 😉

  • 13 Aidan November 14, 2020, 2:48 pm

    Here in Portugal there is a flat rate 28% on share capital gains, halved for unlisted/micro businesses. Same flat witholding tax on interest.

  • 14 Far_wide November 14, 2020, 3:12 pm

    @Dave , would you indulge me with a Spanish tax question that you might know the answer to? If I move to Spain, pre-retirement age, and have a Company DC pension sitting there invested in index funds, do they come after that for tax on an ongoing basis as they do with ISA’s, or can you at least let that grow tax-free until you start drawing down?
    My sympathies in general by the way, as I’m looking seriously into moving I’ve looked it over and I still can’t quite believe just how unfavourable their system is for savers/investors compared to the UK. Still, at least you’re in Spain 🙂

  • 15 Craig Lawrance November 14, 2020, 3:17 pm

    People with large holdings will move them once they get hit with punitive taxes, as the incentives to do so will be there.
    Increasing taxes of any kind will not encourage growth. UK gov post ww2 understood this, growth ultimately is the only thing that will create the wealth to pay off the debt.

    In your shoes, I’d be shovelling as much of your ££ into ISAs & SIPPs and use up any previous years entitlement if available to you.
    The rights and wrongs and the whole moral arguments of taxation have always struck me as rather bizarre, not much different to the personal preferences of food. In the end individuals take all the risk with their investments, the govt takes the taxes. Didn’t we use a similar argument to reduce the fees on fund investments?

  • 16 weenie November 14, 2020, 3:22 pm

    Curse you for bringing Rimworld to my attention…download imminent, cue many lost hours!

  • 17 Whettam November 14, 2020, 3:40 pm

    @AI Cam – I didn’t pay for it and / or buy anything! It was just a magazine feature, you submit your portfolio holdings and a bit on your objectives and they make a few comments. I thought Chris Dillow the IC economist, comments were quite interesting / appropriate, but the two financial advisors comments, less so 😉 one of them even linked to the Bengen Trinity study, but with no observations on its limitations and subsequent research.

  • 18 Foxy November 14, 2020, 3:46 pm

    The WFH tax reminds me of the Keynes’ paradox of thrift, where saving that is good for individuals is bad for society.

    It’s an anti-consumption tax in all but name. Perhaps they should also tax me for using my bicycle too often lately.

  • 19 Jonathan B November 14, 2020, 4:01 pm

    There is little doubt that CGT is too complicated and ought to be simplified. As a thought experiment I would like a system where all rates are aligned; whether you get money as salary income, or as dividend/interest income, or derive income by realising capital gains there should be the same rate – preferably taxed at source for government convenience. It would be intriguing if someone with access to national economic data could model what single rate would raise the same total revenue as now.

    Where the government quite appropriately want to add tax incentives for a reason of social good, that could be done by providing vehicles such as ISAs (incentivising personal saving) and SIPPs (incentivising provision for retirement) – in fact more like SIPPs so that the tax is paid when money is extracted but not when income is accrued within it. I sympathise with the personal residence exemption (politicians have always felt it a social good to encourage home ownership) but that could be treated similarly with tax only becoming liable when money is extracted for example through downsizing or at death. In fact IHT would simply become tax at the same standard rate, of money passing to others.

    On IHT: I don’t think @TI’s idea of taxing beneficiaries rather than the estate would work well, the mechanics are much better with taxing at source. The current system where executors can’t access assets until they have declared IHT liability achieves much more efficiency than is likely if every beneficiary had to be individually assessed.

  • 20 hosimpson November 14, 2020, 4:07 pm

    @NewInvestor – I saw that Grauniad’s article about tax on home working and was flabbergasted that DB would put their name to such a load of cobblers.
    Their central argument was that, now that I mainly work from home, I have been deprived of an opportunity to subsidise the fecking Unite and their strike fund. Shock horror, how shall I cope, and how unfair, really, given that my home working makes no odds to the TFL train drivers’ God-given right to take the Boxing Day off to scratch their balls and drink beer fight the injustice inflicted upon them by all those assholes who want to get home after spending Christmas with their families like complete and utter knobs. Hence I should pay more tax to make up for the above. What a delightful idea. Sounds totally fair to me.

    @TI – the idea of benefiting from what you’ve earned by the sweat of your brow is not necessarily incompatible with a 0% CGT, if the sweat of your brown includes you reading quarterly reports while I drink G&Ts and binge watch TV box sets on Netflix. I don’t have your capital gains problem because I don’t take the trouble to make much by way of capital gains. I’m lucky that passive investing works reasonably well as a retirement saving strategy. I’d be screwed if it didn’t.

  • 21 Andy November 14, 2020, 4:18 pm

    Agreed about inheritance tax. It locks in inequality. If you or your parents bought a normal house in the South East before 2010 you are now sitting comfortably for life.

    A simpler method would be to tax all income equally, no matter the source. I’m sure that would have consequences, but the current system doesn’t make sense; it penalises those who work for their income compared to those who are gifted/inherit their unearned income.

  • 22 C November 14, 2020, 4:25 pm

    If I have to pay tax at all, I’d rather pay it after I’m gone (but like many others who support increased IHT I have no grasping or lazy offspring wanting theirs). Interesting to consider what perverse incentives might result. Perhaps a spend it before you croak it mentality…?

  • 23 NewInvestor November 14, 2020, 4:28 pm

    @hosimpson
    Ha ha, I didn’t quite read it in those terms. On the contrary, I perceived Deutsche Bank’s implied support for lower-paid workers affected by the drastic increase in homeworking as disingenuous. My assumption is that their real concern is for commercial landlords and REITs and the consequences to DB’s business. Whilst you have taken a UK/London-centric view, the report details their calculated effects on US and Germany as well as the UK.

    It does seem odd that a bank should concern itself with influencing social and business changes in this manner.

  • 24 Gentleman's Family Finances November 14, 2020, 4:28 pm

    Sadly I would estimate that more than half the population don’t know about CGT and that it is effectively a nice tax cut for the wealthy.
    Then again, ISAs which are a product for all offer total CGT relief and you can stuff them full of £20,000.a year – something out of reach of 90% of people who either don’t earn enough or spend too much.

    So I reckon CGT, divodend tax, employers NI, income.tax, savings taxes, tax free thresholds and all that need to be harmonised.
    The shocking horror is that guess what..
    It will never happen as the government cant and doesn’t want to.

  • 25 W November 14, 2020, 4:32 pm

    Earlier this year a widely publicised survey suggested most people supported a wealth tax, and “wealthy” is viewed as having assets over £500,000.
    https://www.ipsos.com/ipsos-mori/en-uk/britons-support-paying-more-tax-fund-public-services-most-popular-being-new-net-wealth-tax

    Assets and investments of £0.5m, even if they were all income generating, may produce say £15,000 p.a. Hardly the jet lifestyle. But that level of comfort is now seen as a benchmark for wealth.

    Makes you ponder what capitalism really offers for the majority.

  • 26 Dave November 14, 2020, 5:29 pm

    @Far_wide Spain only cares about private pension funds from abroad after you have accessed them in some way. I am in the position of which you speak, never having worked in Spain. Spanish private pensions can be similar to Sipps in terms of investment makeup, but are less generous on the way in AND the way out. I have hazy plans to spend 6 months + 1 day in the UK or Portugal/Greece when non-pension cash starts to run out, so that I don’t have to pay 45% on my first withdrawal (no 25% tax free lump sums here). The market for consumer finance here relies greatly on customer ignorance, product opacity and hidden fees. I strongly recommend setting up everything pension related in the UK before arrival. Hopefully your setup will not be ruined by Brexit. You need to declare worldwide taxable assets in Spain, but nothing pension related until retirement.

  • 27 Olly November 14, 2020, 5:35 pm

    For what its worth I am a home owner who became an accidental landlord. I have one property that has become a buy to let. I was considering selling it next year as I find equities more suitable for my personal risk profile. I will now probably hold on to it until the tax raid has passed, however long it takes.

    Big fan of building up my ISA compounding machine. I like to control of it and the fact that the government, for the time being, are keeping their grubby little hands off it.

  • 28 Moo November 14, 2020, 5:42 pm

    Hiking IHT will only make more wealthy families put their wealth in family trusts and offshore. The UK seems to like tax arrangements that make nice fees for the financial industry here and in the crown dependencies/overseas territories.
    A tax system that pursues all income/wealth to the ends of the earth is the only way to make it fairer.
    CGT on primary residence makes it hard to move house as you effectively have to downsize each time.

  • 29 Matthew November 14, 2020, 6:42 pm

    How far can tax loss harvesting mitigate it? I would say too that if it’s not reclaimed through tax then ultimately it’ll eventually hit us by increasing bond yields or inflation, so taxes in a way preserve things for us investors and any sort of tax slows down the flow of cash and inflation like Boron in a nuclear reactor. In fact maybe a big tax hike somewhere might have to be compensated for with stimulus just to head off a risk of deflation – that could be the real danger of trying to fix the coffers.

    People with large capital gains may of course be able to change their tax residency. They might also just pour it into their own house, upsizing to mansions, etc. Maybe they can make shell companies where one shorts the other’s position to transfer the money

  • 30 The Investor November 14, 2020, 7:02 pm

    @Kript — Haha, I agree. Have removed one of the links, cheers!

  • 31 Fremantle November 14, 2020, 7:14 pm

    I support a flattening of tax rates across all types of income, be it salary, wages, capital gains, rent. I also support a land value tax, taxing only the underlying land value, not the improvements. This would capture the post code lottery of infrastructure investment, lifestyle changes, economic fluctuations, that create the unearned wealth.

  • 32 Jumper November 14, 2020, 7:30 pm

    The long run return on stocks is around 7-8%. Of this, some 2% or so is dividends, so already taxed as income (albeit slightly tax-preferred). And of the remaining 6%, 3% or so, around half, will be inflation not actual gain.

    In that sense then, the current CGT regime of 10%/20% effectively already taxes all REAL capital gain at income tax rates. Attempting to drive this even higher will discourage both investment and sale of appreciated things, leaving money locked in to potentially unproductive or underproductive assets.

    In fairness, the OTS report mumbles a bit about putting in place an offset for inflation. But if any part of the OTS report becomes reality, it is a fair bet that part of it will be conveniently ignored.

  • 33 Bob November 14, 2020, 7:52 pm

    Excellent point N. Although I took the MV article about technical constipation as slightly humorous, the readers and contributers like myself are fortunate. I encountered an ex colleague who put his life into his children and as a result does not have the ready capital that I do.

  • 34 Brian Roper November 14, 2020, 8:00 pm

    My issue is with double taxation.
    I am taxed on my income. Fine.
    Then if I manage to squirrel away and save enough to invest outside of a tax shelter, and risk the money, in the scenario I make money… the government then take a second slice.

  • 35 NewInvestor November 14, 2020, 8:44 pm

    @Brian Roper
    Your scenario doesn’t sound like double taxation to me.
    You earn £100, pay 20% income tax leaving you £80. You invest this and a while later it becomes £130. You pay tax on the extra £50 you’ve gained, not the whole £130 – your original £80 of post-tax income is not taxed a second time.
    (However, in practice, you will likely be taxed again if you spend the £80 because of VAT).

  • 36 Simon November 14, 2020, 8:46 pm

    Super tax for packed lunches!

  • 37 Fremantle November 14, 2020, 10:07 pm

    Income becomes capital when it becomes savings. Capital gains on savings is a legitimate measure of profit, but ideally there should be no preference between income earned from skill or labour, than that earned from the application of capital (savings) using skill when it comes to taxation.

  • 38 Barn Owl November 14, 2020, 10:12 pm

    The actual report that the Office of Tax Simplification produced is here:

    https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/935073/Capital_Gains_Tax_stage_1_report_-_Nov_2020_-_web_copy.pdf

    I feel we should be commenting on the original paper, since we have it available, rather than a secondary source. The “This is Money” article only seems to comment on the first few recommendations in the OTS report. There are actually 11 recommendations and I think some very good analysis.

    One thing I don’t see in this long but interesting report (which I skimmed) is that CGT on companies comes on accumulated earnings after the company itself has already paid corporation tax. So in that case CGT rates should be lower than income tax.

  • 39 Learner November 14, 2020, 10:21 pm
  • 40 Anonymous November 15, 2020, 12:44 am

    I used to be a simplistic person. I enjoyed the idea of saving a bit in the highest paying savings or current accounts, having a few peps/ISAs etc, and putting a modest amount into my pension. Live within my means and save for the future.

    Then 2007/8 came (we all know own what happened) , and then 2013 came (here, I’m.talking about ‘help to buy’).

    2007/8 Fwiw – I never supported state / central bank intervention. Let every over borrowed person go to the wall, and strip every demonic person who sold CDOs and CDSs of every one of their assets.

    Didn’t happen like that of course.

    2013 was the final straw – ‘help to buy’ was the most cynical, horrid thing I had ever seen. I made a vow to spoil every ballot paper ever since.

    But aside from that I went in hard. I’ve looked for every loophole, every trick and every damn way I can find to avoid (that’s avoid – legal) as much tax as I can. I’m PAYE, but it’s surprising what you can do with salary sacrifice. God knows what sort of fun I’d have if I had my own company. You’ve just gotta read every budget, and every HMRC manual you can lay your grubby mitts on.

    What this is a long way of saying is – I’ve grown to love overblown, grotesquely silly tax systems – because you can play them.

    I’d only support simplification of the tax system if it came with the removal of state and central bank invention in housing and financial markets too.

  • 41 britinkiwi November 15, 2020, 2:52 am

    @TI – since you mention NZ in relation to CGT it’s not absolutely true – there is the “brightline test” for landlords and flogging on their second homes plus a sort of wealth tax for non-Australasian shares…

    Plus our PM the lovely Jacinda did set up a tax working group to look at CGT which essentially proved too unpopular to take forward. The relevant bar chart for comparing tax take on different gains is on page 10 – https://taxworkinggroup.govt.nz/sites/default/files/2018-09/twg-bg-taxation-of-capital-income-and-wealth.pdf – which is why Kiwis invest in rental property, not shares.

    And the majority of MP’s are multiple property owners, which suggests a slight conflict of interest….https://www.landlords.co.nz/article/976516756/majority-of-mps-qualify-as-property-investors

    In our recent election the Greens proposed a wealth tax on anything over $1M (about UK 500k) and did decently at the polls. And whilst Jacinda excluded a CGT during her leadership of the Labour Party as a result of the tax working group report, things could change – not least that many people see the current situation as iniquitous as labour is taxed higher than capital (putting my Marxist hat on!).

    Keep up the good work!

  • 42 John B November 15, 2020, 8:53 am

    What alarms me is the way they suggest interleaving CGT and IHT. They suggest removing the rebasing on death, so that any inherited assets will retain their accumulated CG. This will be an administrative nightmare for executors and beneficiaries, as they will be required to find out the original purchase price, which could be incredibly hard if the deceased was a poor record keeper. It also opens up a morass of edge cases for inheriting property, as to which reliefs apply, and what was its occupation history.

    Dad had £2000 worth of IAG shares. He might have bought them when BA was privatised in 1987, and he might have reinvested dividends. How much did he pay for them? Show your working.

    Reducing allowances could become an inflation tax, which in turn would require indexing, all of which was done away with in 2008.

    None of this is simple, even though its produced by the Office of Tax Simplification

  • 43 Richard November 15, 2020, 10:05 am

    Isn’t the issue one of trying to improve equality (or at least the appearance of equality)? Most people would not have the capital in the first place to be able to invest and get a capital gain in the 6 figure region (unless they inherited it 😉 ). You took the risk and in theory benefited the economy more than just hording the cash would have. You taking risk should be rewarded which I would see as the difference between the rate of CGT and IT. But I don’t see the argument for making it 0%, it just seems open to the ‘haves’ having even more than the ‘have-nots’ who will never earn enough on their own to amass any capital (landlords vs renters etc).

  • 44 WW November 15, 2020, 10:35 am

    An interesting article with some good points, as always. After expelling my cuppa over the laptop at your suggestion to increase inheritance tax, I put my rational hat on and have come to agree somewhat with that suggestion. Inheritance is income, so why not pay tax on it at your current rate. Makes sense.

    Another way to claw back the tax ££ would be to clamp down more heavily on tax dodgers/creative accounting. I know a number of business owners who claim to not earn any money, whilst enjoying a lifestyle far more luxurious that the average Joe. One particular example pays negligible child support on the back of this, suggesting not only a willingness to not contribute to the household and upbringing of his child (and struggling mother), but also that he’s happy to not contribute to society as a whole. ‘Im all right, Jack’ mentality.

  • 45 Jdr November 15, 2020, 11:35 am

    Hi, Swiss reader here…
    You already put a caveat in a subnote, but here is some more detail :
    Yes, there is no CGT here in Switzerland. Dividends however are taxed at the full rate.
    But we also have substantial gain tax on selling your house, and that includes your primary residence. I am looking at 100K+ for the taxman should I sell my home…
    We also have a tax on imputed rental value. Now that I am no longer working that alone adds 45% virtual income to my real income. However the tax I pay on that is not virtual….

    Just to say Switzerland in not the tax heaven too many believe it to be…It is very much down to your personal situation if Switzerland is better than other options. In short : those with dependants tend to do worse here.

  • 46 PA November 15, 2020, 12:13 pm

    Any changes should really be looked at post-Brexit to include corporation, individual, CGT, IHT, pensions et al.
    Simplification in one area may cause issues in another area especially where longer term plans have been used eg supplementing the very poor current State Pension.
    Govt needs to reflect on how the UK will look post-Covid and Post-Brexit – I’m sure revenue streams will change and new directions (eg High Street future/office space)will require money. Perhaps a new investment opportunity will arise.
    Vision is required but not certain they are capable of it.

  • 47 JohnG November 15, 2020, 12:42 pm

    W – That’s an important point. Even putting aside that a lot of people surveyed wouldn’t be considering all forms of wealth (pension, home) the majority of the country would consider a couple with a million net worth wealthy. Sure it can’t generate a giant income, but as you’d be working or receiving state pensions or benefits that’s still a very cosy position to be in compared to most.

    I don’t have any issue with some increases in CGT though I’m not sure fully aligning with income is my preference. With respect to TI if someone is maxing out their ISA and has an investment that is performing so well they can’t divert it fast enough under the current CGT threshold then I can live with them being on the hook for a couple of £k a year.

  • 48 Matt November 15, 2020, 2:44 pm

    It may actually already be addressed in the proposals, but any increase to CGT (which I’m not averse to) absolutely needs to include some level inflation indexing. It might not be a huge problem right now, but we don’t want to get ten years down the line and find ourselves paying tax on gains that don’t really exist.

  • 49 Vanguardfan November 15, 2020, 3:19 pm

    @matt we used to have index linking and then we had tapering. Both were scrapped in the name of simplicity….

  • 50 Eandg November 15, 2020, 4:39 pm

    The annual/lifetime allowances and ISA allowances are there to incentivise and enable individuals to be financially independent and have a good quality of life without relying on the state. There’s really no good reason for capital gains and the like to be exempt from taxation outwith that, so surely the simplest and fairest thing is for them to be taxed at your marginal rate.

    Appreciate this is an investment blog and this is a very real issue for some investors like yourself but it takes a bit of a brass neck for the objectively very wealthy to bleat about the prospect of maybe being asked to pay a wee bit more in tax in the face of a pandemic that’s ravaged the public finances. Likewise the earlier comment alluding to the proles being way off the mark thinking holding half a million pounds or more in assets made one wealthy – folk clearly don’t understand just how fortunate they are and it’s hard to sympathise with them if the government wants to redistribute a wee bit of that wealth to pay for public services and support the less well-off in the midst of an economic crisis.

  • 51 The Investor November 15, 2020, 5:10 pm

    There’s really no good reason for capital gains and the like to be exempt from taxation outwith that, so surely the simplest and fairest thing is for them to be taxed at your marginal rate.

    I understand your point (and to you and others, including my poundshop nemesis @Neverland I’d reminded you I noted them in my post.)

    That said though, you state the above as if taxation is a law of nature. Of course we all understand why it exists, I’d imagine that 99% of readers agree it should exist in order to fund a half competent state. Maybe 90% agree with some level of redistribution, too, though perhaps mostly through services like health and education. I’m among them.

    Nevertheless it’s kind of weird when you think about it that something I have acquired as a private citizen goes up in value, and the state wants its share of the profit.

    I’m not taxed in an equivalent way if I’m lucky in love, or good looking, or enjoy a particularly good holiday. Those private and individual gains are entirely permitted in an much excess as I can enjoy.

    If I spend my money on a series of excellent Sunday roasts, the state doesn’t step in and take a share.

    I appreciate this sounds a bit sophist, but at the least I believe all taxes have to justify themselves. Most can, to a greater or lesser degree. I happen to see the case for CGT, as well as a case against, personally.

  • 52 Richard November 15, 2020, 5:12 pm

    @Eandg – my issue with wealth redistribution is more one around how the wealth was created. For example, should someone earning average wage who over 40 years of scrimping and saving has managed to save 500k (probably while the neighbours spent all theirs) be treated the same as someone who got that through high salary and clever investing at say 25 years old? One can probably recover, the other can’t. Of course this is what the limits on tax advantaged accounts provide, enough so our average earner can protect his lifetime of wealth creation while our high earner gets hit with a tax bill. So the system sort of works….

  • 53 Richard November 15, 2020, 5:13 pm

    @Eandg – rereading your first paragraph, i think we are saying the same thing.

  • 54 Matthew November 15, 2020, 5:30 pm

    @TI – actually hmrc does want a slice of your Sunday roasts, a VAT shaped slice
    It could be argued that our private gains are off the back of state QE, easy come easy go. However if capitalism is best for society maybe it’s best to not gum up the works with tax, for everybody’s sake

  • 55 Eandg November 15, 2020, 5:38 pm

    TI, consumption is largely taxed (through VAT) or as it makes its way through the system (in your example of eating out, through corporation tax and employers NI for the restaurant, tax and NI for the employee) but there’s a good argument that sales taxes are largely regressive and benefit well off individuals who invest with their much larger disposable incomes.

    The size of the state is a completely separate argument from where the burden of taxation falls. I’m not sure about the readership of this blog but most people in the real world would think that the wealthy paying an income tax like share of their ‘unearned’ gains preferable to low wage workers coughing up a bit more while they make the world go round. I agree a balance needs to be struck but that’s why some forms of investment (VCTs, EIS/SEIS SITR) is incentivised through the tax system outside of the aforementioned (and very generous) tax-free wrappers.

    Sometimes people need to step back and realise how very fortunate they are. The median full time worker in the UK earns £31k/year. If you can get anywhere near troubling your ISA or SIPP allowances then you are doing very, very well. And your likely investing success over the past decade or more has had as much if not more to do with fiscal and tax policy as any hard work or ingenuity on your part. If the price of that success is paying a wee bit more to shore up the public finances during an economic crisis then it’s well worth paying, I’d have thought.

  • 56 Factor November 15, 2020, 6:42 pm

    @TI – As you yourself have said in the past, parenthood may change a person’s IHT stance.

    Personally, having inherited nothing whatsoever in my life but having worked my (r)socks off rather than just sat back and “scratched them”, I am now in a position to leave a six-figure sum to each of my four offspring when the Reaper eventually corners me, and I would fight “tooth and claw” to preserve this benefit for them.

    Just as a chicken is an egg’s way of making another egg, my bequests are my DNA’s way of propagating itself! It’s primal.

  • 57 Richard November 15, 2020, 6:49 pm

    @TI – I guess the state would argue that your asset went up in value partly because it provided a stable, secure environment, with the legal framework to allow you to hold that asset and ultimately transfer ownership without the risk of someone just taking it.

    I actually don’t understand why selling your time/skills for a profit should be treated differently from selling an object you own for a profit (in principle terms, I get that you may want to drive certain behaviours by taxing things differently) .

  • 58 Learner November 15, 2020, 7:26 pm

    @britinkiwi, thanks, that’s rather more detailed than my glib REINZ chart 🙂

  • 59 david November 15, 2020, 9:19 pm

    Answers on a postcard:
    Say I’m a self-employed professional and make (very) good money. I pay income tax at 45% on all of that money (actually once you add in NI it’s closer to 47%/48%). I support the idea (and reality) of a welfare state of some description. How much tax is it appropriate for me to pay (as a %)?

    For current day to day survival I don’t NEED (if you’re talking about basic food, clothes gas, electric etc.) ANY of my income over, say, an average London wage. So I could “afford” to pay tax at 100% on everything over that average wage. I might chose to do a job that was a bit less stressful, less 24/7 (realistically it’s not 24/7, more like 16/7) and to earn a whole lot less if that were to be the way things worked (if would be interesting to see what jobs actually had people interested in them and what didn’t).

    Let’s say 100% of anything over the average wage isn’t the right percentage (I don’t think it is, you may differ). What is the right percentage? The greatest burden should fall on the broadest shoulders etc. Except, how much more than 45% should I be paying to satisfy the reasonable redistribution requirements of a welfare state?

    Separately, because it’s just the way I am, I don’t spend much of my earnings on “fun” stuff. I’m more worried about my and my family’s future security. So, I live (sort of) like I’m on the average wage and put the rest of my post tax earnings into ISAs and pensions(except I can put about £4k a tear into a pension so …). I still have some left over after this so I invest in stuff outside tax efficient wrappers. Over the years I build up a nice pot of “wealth” – not buying a yacht wealth but enough that wit a fair wind I might be able to get a multiple of the average salary on (at a SWR (whatever that is)) once I retire. How much tax should I pay on my gains on these investments?

    When answering consider:

    I don’t use the NHS (private healthcare), I don’t own a car (I ride a bike, use public transport or sometimes get a cab) etc. So I already pay a lot of tax in to fund the welfare state and don’t take a lot out (although I get to live in a (mostly) ordered society etc. so it’s not like I don’t benefit. I was educated in my country of birth so no cost there to the UK. Can or should these things be factored into what the right percentage tax rate is for me?

    In “saving” I have deferred current consumption for future consumption (contrast with others in similar positions who choose to live the life and spend big now). I’ll pay VAT on my deferred consumption in the same way as I would have paid VAT if I’d not deferred it, it’s just the timing that has changed.

    On any gains on on my “savings” (the investment income having been taxed as it arises) – should I get a reduced tax rate as recognition that (i) I was taking some risk in deferring consumption for a more comfortable retirement and that risk might actually have resulted in me never seeing the benefits of the invested monies (don’t get to enjoy the benefits of my high earnings / work now or later in that case) and (ii) I’ll be less of a burden on the welfare state than would be the case had I blown it all up front?

    What about the bit of my savings that I didn’t invest in shares but put into buy-to-let? Are those returns just me riding on increasing property prices, doing nothing and stealing from those that want to get on the “ladder”? Alternatively it did require a lot of work (and risk – right now we’re all being told property is going to drop in value) to get those gains – renovating, sorting out plumbing and electrics and dealing with any tenant’s issues as fast as I can (I was a student once – I know it’s crap to have a landlord that doesn’t care, I don’t want that landlord to be me). And, to make those gains I have borne tax along the way on more than my real income from the property (no full deduction for the actual interest cost I’ve incurred for example because the Government has decided that that’s appropriate) so my notional gain also represents more than my actual gain (even before we factor in inflation).

    I spent a lot of years a university and came out with a big student debt and financially far behind those who went into a trade or the military or just generally didn’t spend a big wodge on education. Now I did that because I was making a bet that the education would result in greater lifetime earnings (and because I wanted to) but it was a risk and work and none of the costs of that education ever get recognised in determining the tax I pay.

    I could go on.

    The above isn’t supposed to be a complaint (my problems are ones lots of people would swap for their own in a heartbeat). It’s just to say it’s hard to work out a sensible number / percentage.

    When people are asked the question who to tax and how much to help “sort out the country’s finances” the answer is usually “those who a bit richer than me / have a bit more income than I’m likely to have and tax them LOTS because it’s all excess”. Except that’s an easy answer and not a good one – I happen to think I need a lot of what I “earn” (and that I earn it) to cover my day to day costs now and to put aside for the future. So how much tax I think I should pay (even as a supporter of the welfare state) is not what someone less fortunate that me is likely to think I should pay.

    Taxing the wealthy is easy until you need to define the wealth you want to tax. Wealth differs for lots of reasons – being wealthy in London is different to being wealthy in Birmingham or Lesotho (except if you change the wealth definition to fit what’s geographically wealthy you make it much harder for the person from Birmingham or Lesotho to move to London simply because of an accident to do with the place of birth / location of parents jobs / location of their current job, which doesn’t seem right).

    The bit I don’t have a problem with is taxing inheritance. Absolutely nothing was done / no risk was taken by the person inheriting to get that income / gain / capital. Even if the person passing on the inheritance has paid tax on it, the person getting the money hasn’t (and hasn’t done anything to earn it). It genuinely falls from the sky for the person inheriting (and it is also a way of embedding social / class difference). And why shouldn’t someone who owns a house and needs to pay for care when they get older have to sell that house that is paid from the sale of the house (or incur a debt that is paid from the sale proceeds before anything from it goes to the kids after their / their spouses death)? But then I don’t have kids so I would say that.

  • 60 The Investor November 15, 2020, 9:31 pm

    Excellent answer @David, although of course it’s more a excellent set of questions. Which I don’t think anyone has a good answer to, except, as you say, “tax wealth I haven’t got…”

    There’s definitely been a shift in feelings on IHT, judging solely on these comments, though.

    Interesting. Five years ago I used to get my head bitten off if I raised the subject. I wonder if it reflects people keeping their heads down, or people realizing the current situation is untenable, or fewer people standing to benefit?

    (Although to be fair it’s nearly always been the would-be dead people escaping taxation after they die who have protested in the main, not their entirely fortunate and largely untaxed beneficiaries.)

  • 61 Seeking Fire November 15, 2020, 10:12 pm

    Interesting article & comments. There’s been plenty of commentary that the pandemic may accelerate changes that were occurring (shifts in power base from west to east, the pace of declining industries). Into that bucket can perhaps be put the UK tax base.

    Let’s face it, it’s not exactly a surprise. The UK (and other western countries) has spent far beyond its means for decades hence a persistent current account deficit (circa 3.6% in 2020) and rising net debt (£2 trillion now), many British citizens desire a standard of living way beyond their productive capacity, approx 70% of people take out more than they put in in taxes (Source: HMRC / DWP 2019/20), around a third of people have no savings (source finder 2020), circa 70% of families have less than £500k in wealth (ONS 2018), the Laffer curve has likely largely been reached or close to at the top end and at the bottom end it’s political suicide to increase given the stagnation in standards of living (IFS 2020) and developing countries are catching or have caught up so real wages are not progressing, the population is ageing (this might reverse its true), productivity is persistently low and significant numbers of people are on a quasi universal basic income through non jobs often in the public sector.

    So the govt’s after your wealth and there’s no right or wrong about it. Have a paranoid think about what could happen over the next two decades gradually. Taxation changes will be largely politically driven and focussed on wealth. Govt’s won’t really deal with the problem unless the bond market forces their hand. Financial repression & asset price inflation is helping this all along. Something might turn up to change all this for the better.

    David – the [cynical] answer to your question is one penny less than will force a change in your behaviour. At income – we are largely at that level, hence why top rate of tax might move around a bit but not much. But on assets, it’s significantly higher because – what are you going to do about it? Sure you might spend more – good if you do for the govt (but I doubt you will) and no doubt you’ll look at convoluted tax schemes but the majority including you will largely have to bear the pain.

    There’s not a lot to do about it but modify your behaviour where possible to minimise the increased tax burden. For me that might include not selling assets that are unwrapped and eventually moving to a lower CGT jurisdiction at some point.

    Anyone who feels like they don’t pay enough tax is more than welcome to donate “https://www.dmo.gov.uk/responsibilities/public-sector-funds-crnd/miscellaneous-accounts/donations-and-bequests-account/”.

  • 62 Matthew November 15, 2020, 10:27 pm

    @TI – personally I don’t expect to inherit an iht-able amount, even if I did I’d expect to be 60/70ish, living off myself. Only inheritance from a grandparent could really change your plans, ie before boomers, and in many cases that might be ravaged by inflation by the time it gets to us.
    I myself can choose to dodge iht with planning- it’s largely an optional tax for many

    It strikes me how unforgiving things can be, ie if you didn’t shelter investments, if you didn’t educate or buy a house before having kids, or if you didn’t invest at all – but it’s survival of the fittest, which makes us more productive as a society.
    Note actually how much tax a renter indirectly pays via their landlord’s costs, and also note that we pay tax when we buy an annuity

  • 63 Eandg November 15, 2020, 10:38 pm

    Seeking fire, I dare say there’s a big store of workplace pension wealth in the £500k figure but I’m astonished as many as 30% of families have £500k+ in wealth. Presumably that’s largely English property market driven, alluding even further to the regional/national divide.

  • 64 Learner November 15, 2020, 11:04 pm

    BTW @TI: I like the unpaginated comments – even if it is a bug. If it had reply threading like the mobile view, that would be perfect! Also the covid-fencing. I haven’t looked at t’other thread but this section is a much easier read now.

  • 65 XF311 November 15, 2020, 11:28 pm

    I agree with those who would get rid of (or significantly reduce) the IHT exemptions and workarounds and apply it at the recipient’s marginal rate. IHT, especially given the regional disparities in property price growth (see below), is a key factor in entrenching class/wealth differentials and hence a huge barrier to social mobility. The recent Cameron government changes to boost the thresholds for family homes etc. make it far worse (and fail to recognise that people were being brought within the tax precisely because they had realised such unreasonably profits on their personal properties). I’d spend the money on the education system.

    Another obvious target for tax raises, as others have mentioned, is the principal private resident CGT exemption. Practically speaking, the government could allow you to roll this up and pay it on death (before calculating your IHT etc.) to avoid people being unable to move house without facing a big tax bill. The beauty of this is that it could be applied retrospectively (i.e. to notional gains already accumulated in properties yet to be sold) without much drama given it would only be paid on death in any event. It’s hard to see a “fairness” argument against this given the gains are entirely unearned and (in theory) not the product of a speculative capital investment (so no “risk premium” due).

    Of course both of the above would be far too politically unpopular with the voters who hold sway in our electoral system to ever see the light of day. A certain group of voters feels entitled to their house price growth, and to pass it on to their kids tax free. Seems like low-hanging fruit to me.

    In fact, the whole reason our tax code is complex (and why the Office of Tax Simplification is doomed to fail in its goal) is because voters fail to properly understand the system, can’t see past their own self-interest and need taxes to be hidden and segmented in order to make them acceptable. Something our press does not help with.

  • 66 Seeking Fire November 15, 2020, 11:55 pm
  • 67 Whettam November 16, 2020, 12:40 am

    @david I have sympathy with your arguments, when I was younger I have argued I pay a lot and don’t take much out e.g. private healthcare, no children, etc. However I now don’t think taxation should vary according to what you ‘use’. For example your private healthcare argument doesn’t stand, I had a cardiac arrest at 45, air ambulance, three weeks in medically induced coma, etc. The NHS is brilliant at this type of emergency care (heart was “fixed” privately) and that’s why it’s right I think it’s right I contribute taxes to pay for it and other children’s education, etc.

    I earn much higher than the average and I personally don’t mind paying taxes or want a discount because I don’t get much back, in fact I would be OK paying a little more. But I do think the tax system could be fairer and that’s not just about the rate you pay. It’s about stopping the constant tinkering and making the changes in a fair way e.g. LTA not taxing investment luck / success / prudence, CGT should take time of holding into account not just disposal gain, etc.

  • 68 hosimpson November 16, 2020, 6:55 am

    @Seeking Fire
    But on assets, it’s significantly higher because – what are you going to do about it?

    Deleverage.

    When taxation reduces the return, and avoiding it is not possible / practical, the best thing to do is to reduce the risk profile in equal measure so that the risk / return ratio is brought back into balance. Those of us with mortgages will throw any excess cash at repaying them, while investing less in unsheltered investments, as well as sheltered, assuming pension and ISA allowances are reduced.

    In theory, if enough people do it, that, together with less wealth flowing into private pension funds and investment accounts translates into an increased cost of equity and a reduced cost of debt for the corporate sector. Banks will see a risk creep in their loan portfolios, both household and commercial, all underwritten by the state through the Bernanke put, or whatever is the UK equivalent.

    Also, speaking of the IHT, the price of land should rise if the IHT goes up. Because: there’s no chance in hell this or any other government will see it fit to tax farmers. For the IHT dodgers going into farming will probably translate into buying a piece of bog, planting a few willows and collecting whatever forestry / renewable energy subsidies are available. The lucky offspring will then sell the land to a developer that will drain it and build a retirement village on it, or some such shit.

  • 69 Brod November 16, 2020, 7:37 am

    @Seeking Fire – though I think you’re referring to the mean.

    The median is about half that.

  • 70 John B November 16, 2020, 8:19 am

    Taxes need to be fair, easy to calculate and hard to dodge. CGT has the problem that its hard to decouple genuine gains from inflationary ones, needs tricky record keeping, and has unjustified loopholes like main residence relief. It tends to be very lumpy for individuals, the annual allowance is much more useful for shares than property, and generates unnecessary churn for the former.

    Companies return profits to shareholders through dividends and share price growth from retained profits, if you change taxation rules they will respond to shareholder pressure to adjust the balance, like many US companies.

    A fair CGT system would have annual allowances that could roll-over, no exemptions and have full inflation proofing, but that makes calculations hard, and running them through inheritance would be even harder. The rule changes in 2008 were aimed at simplification, the OTS are now suggesting the reverse.

  • 71 Barn Owl November 16, 2020, 10:08 am

    @John B. I like the rollover CGT allowance idea. I noticed that the OTS paper also suggests allowing for inflation before calculating CGT.
    @TI I’m staying quiet on 100% IHT :-).

  • 72 Factor November 16, 2020, 10:30 am

    @Learner #64 & @TI

    Yes, three hearty cheers for the “covid-fencing”!

  • 73 Al Cam November 16, 2020, 10:43 am

    Brod, Seeking Fire, et al:

    Higher resolution household wealth dataset (latest issue – to April 2018) available from the ONS at:
    https://www.ons.gov.uk/peoplepopulationandcommunity/personalandhouseholdfinances/incomeandwealth/datasets/totalwealthwealthingreatbritain

  • 74 Al Cam November 16, 2020, 11:06 am
  • 75 Seeking Fire November 16, 2020, 11:37 am

    Al Cam – Thanks as ever, your links are very good.

    Brod – yes you are right

    Ho Simpson – Understood & agree. I guess you could take an alternative view. you need to lever further to meet your required return after tax. You are of course taking on board additional volatility.

  • 76 Vanguardfan November 16, 2020, 12:51 pm

    I’m again having issues subscribing to comments. Trying on another device.

  • 77 No Free Lunch November 16, 2020, 4:24 pm

    How much risk have property investors really taken in the buy to let market when the UK government provides benefits year after year to support rental income from benefit tenants and so provides support for yields (and thus prices) for buy to let investments further up the “quality” spectrum?

    How much risk have they really taken when you have mass immigration pushing up the demand for housing (and thus demand from buy to let investors) translating into rampant price increases? Much of the immigration being supported by the general public via benefits and free healthcare/education.

    How much risk have they taken when you have a secular trend in lower interest rates as a major boost to profit margins and thus creating even more demand for buy to let investments?

    The question shouldn’t just be is it fair or not to have higher taxes such as CGT that would penalize buy to let investors more (it most certainly is fair), but that why the heck did they have such an easy ride to begin with at the expense of the general public via deficits/debt?

  • 78 david November 16, 2020, 8:04 pm

    @ Whettam

    Agreed – whether you use the services or not you need to contribute (thus my comment that you need to pay for the organised society). I hope never to use the NHS (not because I don’t like it but because I hope never to get ill enough) but having it there dos provide a security blanket benefit. Likewise, I hope never to call the police or go to court
    but living in a society where those things exist and are notionally available because everyone is supposed to follow certain rules provides me with safety and security benefits. I ride my bicycle on the road – so I benefit from the public infrastructure etc. So I can’t say “don’t tax me”, I can just ask what amount is fair / reasonable / pick another word for me to be taxed. (And query whether fairness is even a concept you can get to (as opposed to aim for) on this.)

    @ No Free Lunch

    “How much risk have property investors really taken in the buy to let market when the UK government provides benefits year after year to support rental income from benefit tenants and so provides support for yields (and thus prices) for buy to let investments further up the “quality” spectrum?”

    Noting that many insurers won’t insure your very expensive BTL asset if you do rent to those on benefits etc. (check the policy fine print carefully) you may find that benefits don’t support the entire BTL market. Noting also that the level of benefits paid doesn’t really provide (in e.g. London) enough to rent a place from many landlords who spend “properly” on maintenance and upkeep and invest in setting up something other than a rabbit hutch sort of business (which style of BTL business everyone “rightly” decries but then councils and others use to solve their budget problems).

    “mass immigration pushing up the demand for housing (and thus demand from buy to let investors) translating into rampant price increases? Much of the immigration being supported by the general public via benefits and free healthcare/education.”

    No argument – although I might query the ” immigration being supported by the general public via benefits and free healthcare/education” given that studies show immigration as a whole is a net tax contributer rather net benefits taker.
    https://fullfact.org/immigration/do-immigrants-pay-more-taxes-they-claim-benefits-and-services/

    https://migrationobservatory.ox.ac.uk/resources/briefings/the-fiscal-impact-of-immigration-in-the-uk/

    And if you wanted to be extra controversial you might note that of recent times migration from the EU has been more likely to be fiscally positive for the UK than migration from elsewhere. (Good thing we’re leaving the EU then.) (Sorry, maybe that needs to be on the other thread somehow.)

    “you have a secular trend in lower interest rates as a major boost to profit margins and thus creating even more demand for buy to let investments”

    Why does this apply to make BTL worse than / more objectionable than any other investment you might choose to leverage?

    “The question shouldn’t just be is it fair or not to have higher taxes such as CGT that would penalize buy to let investors more (it most certainly is fair)”

    Genuine question – why is it “fair”? I see lots of reasons for claiming unfairness, including that you can / used to be able to claim interest as an expense for a BTL whereas a home owner couldn’t so overall cost of ownership may be lower allowing an investor to potentially pay more for the house. On the other hand, buy a residence for yourself and you pay NO tax on any uplift in value over the years so that goes the other way.

    I’m don’t believe that BTL is an unalloyed good or that there should be no taxes on BTL.
    I’m just curious why it’s a business that should be particularly penalised (over and above the taxes you pay on any other business) by the tax system as that’s not obvious to me.

  • 79 Richard November 16, 2020, 10:56 pm

    @no free lunch – aren’t a lot of those BTL points only relevant with hindsight, the risk was still there but everything actually turned out OK? I am sure many in 2010 saw property as something to avoid. Pretty sure many have been saying for years property is over valued, interest rates have to go up and it will all crash etc. It’s a bit like saying investing in the stock market was actually not risky for the last 10 years because every time it wobbles, the government pumps more cash in. But we only know that now with hindsight.

  • 80 No Free Lunch November 16, 2020, 11:20 pm

    david:

    Taking your comments in turn:
    1) Benefits can support the buy to let market indirectly and they don’t need to cover the full rent for a benefit tenanted btl to still have an impact on prices/rents. They support the market indirectly because it helps create a demand for low quality housing for benefit tenants. This pushes up rents and prices for the normal tenant market (i.e. higher up the quality ladder), in fact they really push up prices into overdrive for highly desirable locations as people try to flee the slummy areas with a high % of BTLs and/or benefit tenants.
    2) Whether or not the immigrant is a net contributor is besides the point. There is clearly help at the start of the immigrants journey by providing housing, getting children free schooling, using GP services etc. Over time the immigrant may become a net contributor. Regardless, it has provided a boost to housing demand and the socialization of housing/education/healthcare/public services helps support the transition.
    3) BTL should be treated as something different to a normal business. BTL is a form of rentier capitalism. One that does not really help our country directly to be more productive (over and above providing rental housing for people to work here so that they can be productive). Legislation changes are simply part of the risk you take when you “ventured” into the buy to let business. With increasing capital gains whilst wages don’t keep up, you take the risk of potential social consequences due to the resultant inequality. Perhaps, given the scope of further policy changes against buy to let investors, you have been compensated for taking on this risk after all. Time will tell. I suspect those who are smart would have locked in their gains by now and exited a market which maybe fully valued.

    Buy to let should not be taxed to death because we do need a market for those who do not wish or can not buy. But it needs to be taxed enough so that it is commensurate to the actual service being provided and reducing potential social consequences.

  • 81 No Free Lunch November 16, 2020, 11:33 pm

    Richard,

    The point is still valid because perhaps the risk becomes more in line with the reward if you factor in tax changes and other punitive measures against landlords. That said, as mentioned above, the buy to let market is a form of rentier capitalism and should be more harshly taxed than a business that is actually producing something. Investing in the stock market will likely help support proper businesses by lowering their respective costs of capital, so the incentives to do so may make sense.

    Given the boom in landlords since the 90s, perhaps legislation should have been more punitive such that the rewards were still there, but they were not as magnified as they have been. Then investors would not get such surprises like CGT changes as they may find out sooner or later.

  • 82 No Free Lunch November 16, 2020, 11:52 pm

    Richard,

    Forgot to add to my comment above to more directly answer your question. Whether or not it was obvious that there would be a huge boom in UK housing market is irrelevant. My point was that since the UK taxpayer is essentially partly funding (directly and indirectly) the buy to let investors’ profits, it makes sense for this to be clawed back in the form of taxes. The “right” thing to have been done was to tax earlier so that prices would not have gone up as drastically, UK public finances would not be in such a state as it is today (although it certainly would still have been terrible, just not as bad) and you incentivize more professional landlords relative to amateurs.

  • 83 No Free Lunch November 17, 2020, 12:35 am

    Just on the assumption on immigration, we won’t know the true impact on the UK fiscally because we don’t know how long the immigrants will stay in the UK. Perhaps the current working cohort of immigrants will stay till they die here compared to previous cohorts.

    Furthermore, whilst the statistics may show the net impact on UK fiscally is positive, there is presumably a wide distribution of impacts from negative to positive. What I am arguing is the impact of low skilled migrants on the housing market, because it is this subset that disproportionally benefits from, well, you know, benefits. It is this subset of the immigrant population that you need to see whether or not there is a net fiscal positive impact or not. I suspect it will be negative, further supporting the idea of taxes.

  • 84 No Free Lunch November 17, 2020, 12:57 am

    Forgot to add, even if low skilled immigrant labour is a net positive, you need to see how much the positive impact is because, as with any form of investment, there is a required investment return to make the investment worthwhile. Human capital in the form of immigration is just an investment we as a country are making. Even if the immigrants are making a positive net impact fiscally is it still worth the risk we take when we import them? Perhaps as a country we should share some of the BTL landlord’s profits to come closer to fully compensating the risk we take on with immigrants.

  • 85 Richard November 17, 2020, 9:26 am

    @no free lunch. I think there are two things at play here:

    1) Is BTL a risky investment? I would argue yes, it is. Even though hindsight shows it to have been very profitable, I don’t think it is fair to say it carried little to no risk. Personally I have seen BTL as more risky than shares over the last 10 years, all things considered.
    2) Is BTL a risk we want to reward through tax incentives. I would agree, it is not something that should get preferential treatment to other businesses. It is hard to see how it is a productive in the wider economy, so it shouldn’t get say VCT style relief. That said, I do often wonder whether high house prices are in driving the broader economy (through transactions, through money creation via lending, through release of cash via inheritance, through jobs for builders etc)….

  • 86 hosimpson November 17, 2020, 10:23 am

    Perhaps as a country we should share some of the BTL landlord’s profits to come closer to fully compensating the risk we take on with immigrants.

    … I have no words…

  • 87 Matthew November 17, 2020, 12:30 pm

    @no free lunch – if you increase the tax on landlords you will only increase rents – a landlord has a much higher concentration of risk than a shareholder (believe me, I’ve seen multiple neighbour tenants stop paying rent then trash the house before they get evicted) – so they will only be a landlord if they’re going to get a return over and above what the stock market will provide. Even with good tenants a landlord can still go under if interest rates do go up with all that leverage and all their eggs is in one or two baskets, in one country – if you were going to do property at least by reits inside an isa/sipp instead. There is a lot of inefficiency in renting by introducing middlemen – the landlord pays tax, he/she has to take out insurances that an owner occupier does not, they often pay estate agent fees, the tenant has much less of a vested deposit so they are more of a credit risk and also a tenant is borrowing the entirety of a house month in, month out, rather than just part of a property like an owner on a mortgage. In fact if someone has a mortgage they are almost providing the banks with a service by offering then a relatively good rate on a safe mbs bond, whereas a tenant is borrowing something that is in short supply which doesn’t really help societies supply problems.

    Id like to see low skilled migration down to create a worker shortage for the benefit of local’s wages but it’s dishonest to suggest they’re mostly here for benefits – in fact their inability to claim benefits (coupled with them renting since they have no assets) is why they end up supplying so much labour at a pittence, undermining the value of local workers. Our benefits system also undermines the value of low paid work so you could imagine for example low paid fathers chastised for going to work rather than helping with the kids and families splitting up to maximise the dole claim. You get unmotivated low paid workers who don’t care if they end up in the dole, or would even prefer it. However also be aware that whilst you may be able to shut out migration locally and that might benefit local care workers and fruit pickers, if there is a big wage disparity you may get factories going abroad. I think this is what might happen with Bidens high minimum wage he wants, but it may also be good for us by sucking away the unskilled migration that may otherwise choose the uk.

  • 88 No Free Lunch November 17, 2020, 12:44 pm

    Richard:

    1) I never said BTL has been no risk but when you have government policies providing a huge tailwind for the market and, crucially, funded by the taxpayer, you do need to consider how much of the wealth generated by BTL investors was funded by the taxpayer. This is what has made it less risky. Hence a more harsher tax in the form of CGT makes perfect sense, although it should have been implemented a whilst ago.
    2) There is a danger of being disillusioned by the wealth generated my house prices. It makes us more addicted to rentier forms of capitalism. This means that we do not invest adequately in proper forms of productive investment that would enrich our country as a whole. Ask yourself why the US has a land tax that has suppressed property prices there relative to the UK. It drives other more productive forms of investment because not only is it more worthwhile, but because human greed drives us down that path.

  • 89 No Free Lunch November 17, 2020, 12:59 pm

    Matthew:

    You can not simply raise rents just because your investment, post-tax, suddenly has reduced in terms of return expectations. The tenant market may not be able to support higher rents and you maybe left with a void property, until you bring the asking rent down. Not only that, but we are mainly talking about capital gains tax, which is a tax on the value not on income. So landlords from an income perspective will still be as profitable and won’t need to raise rents. Even after the changes in tax deductible with interest, rents have not gone up that much. What harsher tax on landlords also mean is that the market would move towards a professional landlord market so you would have fewer (amateur) landlords, but each landlord having much more properties to let. This creates benefits from economies of scale resulting in rents having to not increase as much.

  • 90 No Free Lunch November 17, 2020, 1:18 pm

    I guess I should consider myself lucky in that I decided to sell my previous home locking in tax free capital gains well in excess of £100k and bought 2 more, one to live in and another as a BTL. The later I bought fairly recently so has little if any capital gains. If I kept my previous home as a BTL, it would have made me liable to significant capital gains tax over time whenever I ended up selling it.

    But I am only in my 30s so have decades of capital gains ahead I suppose.

  • 91 Matthew November 17, 2020, 1:47 pm

    @no free lunch – well you said yourself how the benefits system will just pay the rent – if you’re letting to tenants it almost doesn’t matter what you charge. There could be some short term losses elsewhere in the market but over time it’d even out as part of inflation. If more is paid out in universal credit, minimum wage has to go up to control the benefits bill, and so it goes on like a dog trying to catch a ball in the sea.

    It doesn’t really matter what form the tax comes in, but the overall impact on returns and how you recuperate that.
    I’d also say that landlords provide a very valuable service, valued by the rent they collect. They facilitate people living & working or living on welfare (which is something our society seems to value having)

    You have done well for yourself but you have all your eggs in one basket. You might do very well but you could have a much better risk return ratio. A bad tenant might sink you

  • 92 David November 17, 2020, 3:50 pm

    Bring back the Covid comments!

  • 93 The Investor November 17, 2020, 3:55 pm

    @David — Covid is being discussed over here:

    https://monevator.com/does-working-from-home-work-for-you/

  • 94 gadgetmind November 17, 2020, 6:38 pm

    I spent many decades being a very hard-working tech entrepreneur type person, large team across four continents, working from dawn to dusk even in the summer, and had the income the match this. Great, sounds good, but the constant changes to pension allowances and tax made me feel like I was being singled out for punishment, and being forced into 60% tax bracket and 45% tax bracket, with LTA dropping all the time, just got too much for me. I dropped to a four day week for a while (though still probably did the same amount of work TBH!) but eventually knocked it on the head. I went from often paying £100k+ pa in tax to now sub £10k.

    This isn’t a tail of woe as I’m now much happier, and I was lucky enough to benefit from the higher pension annual allowances that would now be denied to me, generous CGT allowances, and much more.

    But what did the government really gain? The problem with going after the geese that lay the golden eggs is that they have wings and they are very adaptable.

    Me dropping to a 4 day week knocked £30kpa off my tax bill. Was this the outcome that the government really wanted? Sure?

    My retiring knocked a massive chunk more out of their tax take, and my role wasn’t filled in the UK (post Brexit – don’t make me laugh!) so again, was this part of a cunning plan?

    Raising taxes always seems like a good idea, but it rarely is.

  • 95 Matthew November 17, 2020, 7:28 pm

    @gadgetmind – so if your pay dramatically dropped, where did that money go instead (ie who took your job/the business from your company?) – what became of your tech business? – is this a zero sum thing or did you actually produce more than the economy would be otherwise had?
    Could be argued that one person earning the lions share is better for the taxman, I think at the high end that’s true (maybe not at the low end)

  • 96 Gurkan November 17, 2020, 9:02 pm

    A separate Covid thread? Time for a forum perhaps a la MMM?

    Just throwing out an idea. 100% inheritance tax. What would it do? Well I live down a street near a good school with nice big houses. Most people who live in those big houses are retired, kids long gone. Most of the kids who actually go to that school walk from smaller, less suitable homes past all these lovely big half empty houses. If the owners had to liquidate to avoid losing their house to the state under my new regime, suddenly a lot of nice big family homes come on the market for the people who would benefit the most from them. Also immediate boost in consumption from retired generation no longer looking to pass on wealth. They have to spend it now.

    My own personal plan, of course subject to change, is to liquidate our own family home when the kids are around 30 and do a reverse inheritance. So buy an annuity and give the kids a set percentage of this until of course we die. Easy (no) estate, no potential for inheritance wranglings, and no financial incentive for a relative to die, in fact the opposite. Admittedly a small risk of keeping me alive when in ill health, but minor I think. Background is that almost every old person I know has made some mistake in home sales / purchase post-retirement and I wish to retain flexibility. And having an inflation-linked annuity makes you probably the ideal tenant so you’d have your pick of properties.

    Anyway, just an idea.

  • 97 david November 17, 2020, 10:02 pm

    @Richard 9.26am – agreed

    @ no free lunch

    A lot to unpack in there, including an approach to assessing immigration I find difficult to square with. Also, rightly or wrongly, when I see “rentier capitalism” used as a pejorative description I tend to switch off a bit as it’s too often (almost always – I’ll allow for the possibility it’s not always) used as a shorthand for “someone making (trying to make) money in a way I don’t like” without really analysing or understanding. (After all, Karl himself treated rentiers and capitalists as separate “things” – the more recent combination / hyphenation of the terms isn’t often illuminating (or illuminates but not necessarily the subject matter).)

    That said, I note you (unusually compared to many who use the word) have at least unpacked the phrase a bit and said you are looking at (and have an issue with BTL as) a rentier form of capitalism. That phrasing is helpful as it lets people understand a bit better the objection being raised. To that objection I’d simply say not all BTL is a rentier form of capitalism – if you take a run down (or not even run down) place and do significant work involving the investment of capital (equity or debt) to improve it and then rent said done up place out as a BTL that can’t (on the definitions at least) be classified as a rentier form of capitalism. It may still be just as objectionable to you or others but it would have to be on some other basis than it being rentier capitalism.

    Probably enough on that from me.

    There are lots of business / investment options out there. Choosing to discourage some via the tax system is fine (I happen to think a sugar tax is a good idea – Coke (others available) are likely to disagree with that particular one). However, if we are going to discourage something via the tax system we should be:
    a) clear about why,
    b) factually driven (rather than chasing polls) in targeting what we want to discourage (is all BTL bad or only some and how do you distinguish – if you like construction of new places for rental, do you like renovation of existing places to bring them back to inhabitable too, what’s the minimum level of “doing it up” required to change something from merely non-productive rent seeking (if that’s what BTL is for you) to productive? etc.),
    c) prepared that it might create loopholes or opportunities for “exploitation” or that it might backfire and work “too well” with undesirable side effects (I’d be sad if a sugar tax removed all soft drinks or meant everything had aspartame added instead), and
    d) fairly sure that (or at least have some reasonably grounded and explained expectation as to why) the cost to the Government and society (incl. loss of tax, reduction in or displacement of targeted activity) of implementing the tax lever in question policy to the Govt doesn’t outweigh the benefits (increased tax take, the desired behavioural changes).

  • 98 Richard November 17, 2020, 11:16 pm

    @Gadgetmind – I get someone who is just inside the 60% band bring aggrieved, but you sound like you were way above that. So the extra 2k in tax between 100k and 110k and the extra £500 for every £10k over £150k was such a major issue that you quit work? How much extra tax, as a % of your total income were you paying?

    As an example, let’s say you were on 200k. Today you would walk away with around 117k. With 60% and 45% back to 40% you would take home I think £121.5k. This is what, around 4% more. Hardly feels like a big deal to me on those numbers. Even on 160k it would be £96k vs £98.5k which is around 3% extra. Really, I can’t see anyone who was not already very close to retiring storming off or taking a significantly lower paid job just to avoid this.

    Appreciate though this is often more psychological than rational – losing something you had.

  • 99 Matthew November 18, 2020, 12:59 am

    I think if @nofreelunch has a problem with rentier capitalism, there’s no way that moralising is going to stop it (if you can’t beat them, join them). If he is a follower of Karl to use such phrases like “rentier” then if he does want the workers to own the means of production then he should fully encourage everyone to have a pension and invest – getting maximum social justice would mean spreading capitalism & knowledge of investing to every less well off person you can. The creation of a stock market has democratised investment, as has low fee commission free investing with small amounts and information online, and indexing – Bogle has done more for social justice and equality of opportunity than anyone, as has monevator. Even banks.

    At least if people invest they can escape the rent trap or have something to show for working. Punishing landlords won’t cut the cost of renting, if that was what worked him – if he wanted to do something about that he has to somehow increase the supply of cut the demand

  • 100 IanH November 18, 2020, 10:30 pm

    Possibly a daft question, but anyway (plus I might have pressed go on an earlier draft – sorry ).

    If you hold the same shares in two accounts and sell from one of them, is CGT charged on the average purchase price across both accounts (i.e. Section 104 aggregates across accounts). I suspect it does, but it seems harsh. My reasoning (or daftness) is: say you bought 1000 VWRL in March this year in one broker account, and were feeling well chuffed with yourself having fluked a market timing triumph. So this month you scrape around for a few extra quid and can afford another 10 VRWl, about £750. But having read monevator for years you are wary of overloading into one account, and as you now have nearly £75k in your first acccount you feel its time to open another, to stay well inside the FSCS 85k limit. So you buy the new 10 VWRL in your new account. Then of course your oven blows up the next day, to the sum or £750 to replace it. So its either cash in the 10 VWRL you just bought or buy it on credit (you’d not got round to reading the Monevator post on emergency funds yet…). The source of the cash you used to buy the original 1000 VWRL exactly used up your annual CGT allowance, and now you are looking at paying CGT on the 10 VWRL you just bought, which if aggregated across the two accounts may well mean you are assessed as having made something like 20% gain, so you are in line for a basic rate £15 or £30 higher rate CGT charge on your 10 VWRL shares you only held for a day. Bummer. Or have I gone totally off track with this?

  • 101 hosimpson November 19, 2020, 3:42 pm

    @IanH – You are right, unless, in your example, your payday is within 30 days of selling your shares and buying the new oven. In that case you can re-purchase the 10 VWRL shares form your salary and apply the B&B rule in your CGT computations. I’m certain it was not intended (by whoever was the HM Treasury desk jockey that wrote the book), but in practice the B&B rule allows you to avoid the bulk of the CGT if you have to sell shares in order to deal with a short term cash flow problem. Share price fluctuations within the 30 days might mean that you only need to purchase 9 shares to break even, etc.

  • 102 jimbob November 19, 2020, 4:09 pm

    “simplify and massively expand inheritance taxes (I’d do this by taxing recipients rather than the estate)”

    Taxing recipients may become a nightmare to administer, especially if there are illiquid assets and family squabbles to contend with.

  • 103 Dave November 19, 2020, 8:20 pm

    “Taxing recipients may become a nightmare to administer, especially if there are illiquid assets and family squabbles to contend with.”
    This is what every other country in Europe does.

  • 104 The Investor November 23, 2020, 11:14 am

    This was an excellent conversation, with good views on all sides. Thanks to all contributors.

    I’ll just conclude by noting my title to this post. You hopefully recognized a (possibly distasteful?) allusion to the famous verse about Nazi Germany and how it worked through its domestic ‘enemies’ stealthily, one at a time.

    My point is most people won’t care much about CGT because they don’t pay it.

    But ask yourself if high-minded rhetoric about chipping in and the wealthy paying and whatnot would still hold if, for example, the Government announced that ISA tax-protection was being abolished, and so in future all your dividends and capital gains in ISAs would be taxed?

    You might say “fair enough, we need to get through this”. In which case fair enough.

    More commonly, I think you will say “no, not my ISA, it’s not fair to change the rules, I saved when I could have spent money instead, I was responsible and now I’m being punished, having a few ISAs doesn’t make one an oligarch!” etc etc.

    Which is exactly what I’m saying about the CGT allowance, and potential changes to the CGT tax rate. 🙂

    As I said in my own piece (ignored as ever by our house troll, who has made a rare reappearance): “It’s the nature of tax hikes that people tend to think they’re fine if they believe they’ll never be hit by them.”

    This is why I would be in favour of a comprehensive tax overhaul, but not a smash-and-grab windfall tax on wealth.

    I don’t want to pay for political weakness or other people’s folly.

    But if it’s part of a sustainable and long-term better tax system, which is more equitable across all of society, then that’s different IMHO (and I agree even principle places of residence should be looked at, especially if the alternative is just making heirs richer).

    We’ll see. Personally I think any move to raise taxes with gilt yields so low — below inflation — would be a mistake.

    We would do better to grow our way out of this first, and maybe tax more when there’s a punchbowl to take away from the party again!

Leave a Comment