Why have a capital gains tax allowance

By the way, Thomas Piketty in 'Capital in the Twenty-First Century' makes the same point about being able to make more money from wealth (assets) than from working.

But if this Constable had been sitting in a loft undiscovered, it's unlikely that the finder had ever bought it and paid with taxed money. It's a lucky find. Incidentally, I'm not sure what the rules are now, but if it's been in the owner's possession for more than a certain amount of time (30 years?) there is no CGT or, at least, it's only paid on a sliding scale and inflation is taken into account.

Ah, sorry, Elegran. I was too lazy to scroll back. However, I stand by what I wrote.

Some of the biggest beneficiaries of converting income to assets are buy-to-let landlords. What they do is use rental income to buy more mortgaged property. When they do their tax return, they claim that all income is used to pay back debt and, therefore, they make no profit. The ONLY tax they pay is CGT. They haven't paid any other tax and there are even ways of avoiding CGT.

They can also renovate property and claim to be living there while the renovations are done and, therefore, pay no CGT on their main home.

They can also set up an offshore management company, which owns the property, although fortunately Osborne has cracked down on this particular wheeze. Until now CGT wasn't payable on UK properties owned by non-doms. Offshore companies can pay their 'directors' a salary, which can be taxed in a number of different ways.

I expect there are other things people can do - I only know some of them from experience (not mine). The fact is that by juggling assets from income to capital, people can and do avoid paying large sums of tax.

The £X that was originally used to buy the Constable would have had tax paid on it when it was income, and the Constable had probably increased steadily in value from when it was bought until it was "discovered" and sold, at the same rate as inflation has changed the value of the "pound in your pocket".

If a painting that cost a lot when bought falls out of fashion and actually loses value when it is sold, can the seller claim a Capital Loss and get a negative tax bill?

Not my Constable story, daphnedill I only posted about savings.

Elegran, In your example of the discovered Constable, no tax will have been paid.

Another example:

A person has his/her house repossessed, can't get a mortgage so has to rent. Meanwhile the person still has a few thousand from the equity of the house. The person isn't eligible for ANY benefits because the cash in the bank is over the threshold. Meanwhile, the high rent and living expenses mean that savings are gradually dwindling.

What the person could do is buy something which is likely to go up in value and store it in the loft for a few years. Alternatively, he/she could hang on to the valuable picture already owned. He/she could then show bank statements to officials and claim benefits, including pension credit, legitimately and legally. After a few years he/she could sell the asset and, if lucky, make a few thousand pounds. It's absolutely right that the person should pay capital gains tax.

That's what I meant about savings. The person wanting to claim benefits might also have scrimped and saved to put aside money in the bank. CGT is there to try and stop the person converting the cash into an asset.

Pedantic is not the word I would use Roses but if that is what you feel you are being who am I to argue

If it's that simple to find the answer to the question in the link, maybe you could supply a link, roses, because I can't find a straightforward explanation.

I found some key dates in the history of capital gains tax, but no rationale for changing it in the last budget.

www.telegraph.co.uk/finance/personalfinance/capital-gains-tax/7771799/Capital-Gains-Tax-a-brief-history.html

All taxes are supposed to redirect wealth to where the Chancellor thinks the country needs a boost, so maybe Osborne wants to encourage people to sell their assets, but I can't see why.

As a possible answer to the question in the op, my guess is so that people who want to sell a family heirloom (for example) without making a business of it, don't have to pay CGT.

I see from the link above that the first threshold was MUCH higher than the income tax threshold, which must have negated some of its purpose. There was a time when companies offered to pay their employees with shares (some of the banks still do, especially for pensions). They weren't liable for income tax, but they were liable for CGT at the rate applicable when cashed in. This meant that timing was critical and people could avoid income tax, especially if the shares were offshore. My ex was paid like this for a few years and, I believe, still holds the shares offshore. He never paid ANY tax on them. CGT was originally supposed to stop these kind of schemes, but people have found loopholes.

The original capital is not taxed just the increase I think you will find Elegran. That increase is income so really no reason I can see not to treat it in the same way as earned income. As I have said before, why should income earned from capital investment be treated any differently to income earned - and usually unavoidable to most people - by working.

No need for sad faces GG and where have I typed anything 'personal' hmmn?
Sometimes asking for the facts or the truth of a matter is not best served by looking at responses on an open forum, as I said, if you wanted the discussion, then that's a different thing entirely, maybe a tad pedantic of me, but hey-ho.

"The benefits system treats any savings as income, so why shouldn't the tax system?" Because savings have already been taxed when they were income. why should the same money be taxed when it is earned and then again while it is savings?

Roses, why do you have to get so personal; this is not for the first time either I was interested and asked the question - this is a discussion forum. I wonder why you feel the need to tell others what questions to ask and how to ask them? If you don't think a thread is worthwhile or you do not value the discussion surely the answer is not to join in.

Neither do I Whitewave. We are not badly off ourselves- and we have many friends and relatives who are VERY well off and more. No envy from me- as long as they play fair and morally. Some do- some don't! We also know many non-doms who really really play the system and see nothing wrong with that.

I wouldn't use Gransnet as a source of finding out facts, if you wanted an actual discussion about the rights and wrongs, then that is a different matter.

your 'question' could easily be answered by Googling. Simple.

I asked a question the answer to which I was interested in Roses. Should I have asked permission before I did so?. If so - whose?

Actually Monica is right, maybe not on this thread, [although why was it started?]
but in several other threads there is certainly a whipping up of hate against wealthy people , envy used as outrage?By some, certainly.

M0nica, I have no idea why you think I or anyone is "whipping up hate against anyone with resources above the national average". I have no problem with individuals - I do not "hate" anyone but I do find systems can have immoral outcomes.

Monica, That person would also lose his/her pension credit, housing benefit and council tax benefit, etc. The benefits system treats any savings as income, so why shouldn't the tax system?

A 'lost' Constable could fetch millions, which would provide a pensioner with a very nice income for life even without interest on the capital.

Nobody is hating anyone with a bit of dosh. But if not hate , I despise those who live in a country, pay nothing or less than their fair share and then expect to have a say in the country's affairs.

Those people of large income you have listedmonica have fairly declared their wealth, and pay tax accordingly. It is those whose wealth has not been declared and are not paying a brass farthing on it that is what is under discussion here.

Gracesgran, if someone on Pension Credit takes a picture, once on their wall, to an auctioneer thinking it might fetch £100 or so and then it is Discovered to be a lost Constable painting that fetches hundreds of thousands, it seems very unfair to insist that it be taxed as income so that they will lose nearly half of it to the taxman, when treating it as a capital gain will mean less tax is paid.

The CGT regime applies equally to all, rich or poor, all pay it at the same rate. Your CGT allowance does not increase in size depending on your existing wealth.

I hate all this whipping up hate against anyone with resources above the national average. The vast majority of these people lead perfectly respectable lives, paying their taxes honestly and as requested without any recourse to dodgy tax evasion..Yes of course there are people dodging and diving to avoid paying tax but they are a very small proportion of the top, say 20% income earners in the population.

If there are 30 million tax payers in the population of whom, say 2 million have assets over £1million or incomes in excess of £100,000. There is a limit to how much they can be expected to contribute to the tax revenue while still being left some income to live on. Any reductions in expenditure or increases in taxation have to come mainly from the remaining 28 million people whose numbers and incomes add up to far more than the income of the 2 million.

It is noticeable that even GO has left the CGT higher for houses sunseeker. The person who bought the house might have lived though a time when the house prices kept price with income as they have in the past rather than the unrealistic rises we have seen which, imo, are in great part due to lack of building which has happened under various governments i.e., very little to do with the person who owned the house.

Tax should be as low as possible and the more it is equitable between income and capital taxes the lower income tax can become. I appreciate that not everyone will agree with my views but I think it is immoral that more can be earned from capital than from working simply because the government makes it that way. I do not believe in extreme or unfettered capitalism and I do see that many would not agree

Where houses are concerned I am sure one of the wily accountants will find some sort of slow equity release for those needing to sell to pay for care although obviously if you have already used the whole of your personal tax allowance this may not suit.

Ooops! Sorry! Didn't see Elegran's post.

CGT isn't payable on a home which has been a main home, unless it's very large (grounds over 5000 square metres), so people selling a home to fund a care home don't pay.

The decrease in CGT rate was in the last budget. I guess there wasn't much fuss about it, because people don't know that much about it.

The main beneficiaries will be property developers and owners of property portfolios, who definitely do use property as a form of income, and shareholders.

It probably is fair enough to have a tax-free amount. Otherwise, people selling a personal asset as a 'one off' would have to pay, but I don't agree that the rate should be lower than income tax.

Capital Gains Tax, what you pay it on