In the UK, Capital Gains Tax (CGT) is generally not the same as Income Tax. Why not?

Money which is earning interest, investments or share income is often money which has already been taxed when earned.

This is not the case for inherited wealth, but even that would have been taxed at 40% if it was over £million.

CGT covers many areas.

Rachel Reeves prefers to follow a Conservative economic policy.

Thanks for replying GrannyGravy13, I keep trying to clarify this in my own mind.

I think the counter arguement to what you suggest is that the initial capital itself - often accumulated from already taxed income or assets - should not be, and as far as I can see, is not taxed.

Taxing the passive income from the investment is a way to tax an ongoing economic benefit. This still encourages investment and economic activity whilst only taxing the returns or income generated from that wealth, rather than taxing the wealth multiple times.

If we are not to increase wealth inequality then this tax should surely be the same as that on earnings from work?

GrannyGravy13

Money which is earning interest, investments or share income is often money which has already been taxed when earned.

This is not the case for inherited wealth, but even that would have been taxed at 40% if it was over £million.

CGT covers many areas.

But the interest hasn't been taxed.

We owned a second home , bought for a S , very briefly in 2002/3.
When we sold it CGT was 40%.
It came down after that date to I think, 24% so it was more than income tax in those days.

growstuff

GrannyGravy13

Money which is earning interest, investments or share income is often money which has already been taxed when earned.

This is not the case for inherited wealth, but even that would have been taxed at 40% if it was over £million.

CGT covers many areas.

But the interest hasn't been taxed.

Interest over £1,000 basic rate tax payer, £500 40% tax and £0 for highest rate have to be declared on your tax returns growstuff and is added on to your annual income, and taxed.

The only way to avoid tax on interest or gains is an ISA or take your luck with Premium Bonds.

Money which is earning interest, investments or share income is often money which has already been taxed when earned.

That's specious argument. Money which pays VAT on purchases ,licence fees & renewal fees (driving licence, passport renewal for e.g) is also money which has been taxed when earned. There's little special treatment which exempts anyone from paying it.

The government creates and issues all our money, it taxes back a proportion of it to prevent inflation. There is no reason why it should make any sort of 'special case' for some of that money to be more lightly taxed on the grounds that it's already been taxed.

The 'deficit' between the money it has issued and the amount it taxes back is the amount of money in the economy which it hasn't yet taxed back. The deficit is essential for keeping money in circulation to drive economic activity and to accommodate a growing population. It also represents people's savings.

N.B. Money is created by banks, under licence from the government; as loans which are paid back, plus interest. Once the loan is repaid the money the bank created is essentially 'dead', it no longer exists, the interest is the bank's profit. Only money spent directly into the economy by the government leaves enough money in the economy, after taxation, to enable continuing economic activity.

Interest over £1,000 basic rate tax payer, £500 40% tax and £0 for highest rate have to be declared on your tax returns growstuff and is added on to your annual income, and taxed.

But that first £1,000 isn't taxed. There's no good reason why this should be so. It's all income.

Bonds of any sort also take money out of the economy to prevent inflation. When the bond is redeemed and the money is spent it is taxed in the normal way. Its taxation just isn't immediate.

MaizieD I think your post illustrates exactly why CGT should be at its current rates.

We as a nation are taxed every which way as it is on everything apart from the air we breathe.

Usedtobeblonde

We owned a second home , bought for a S , very briefly in 2002/3.
When we sold it CGT was 40%.
It came down after that date to I think, 24% so it was more than income tax in those days.

Which would seem equally wrong to me Usedtobeblonde, if it was your only or main residence. I do think there is a difference when it comes to houses. Houses are/should be homes first and foremost.

GrannyGravy13

MaizieD I think your post illustrates exactly why CGT should be at its current rates.

We as a nation are taxed every which way as it is on everything apart from the air we breathe.

I don't think it proves it at all. Taxation has a purpose, as I pointed out, and there's no compelling reason why what is essentially income should be taxed differently from any other income.

If the government didn't issue any money you'd soon be in bother...

MaizieD you are, I believe, wrong in this instance. You are comparing apples with pears.

The comparison between two forms of income tax seems reasonable to me. You dismisses a reasonable arguement without taking into account that you are comparing a sales tax with income taxes. It appears you may be suggesting the first argument is "specious" because it doesn't align with your beliefs, rather than engaging with the actual reasoning or evidence behind it.

Very good point about VAT. MaisieD

PoliticsNerd, CGT only applies to second homes. Your primary residence is exempt.

We as a nation are taxed every which way as it is on everything apart from the air we breathe. (GrannyGravy13)

The UK's tax burden is moderate relative to most other developed countries. What seems to have happened during the previous Government is that many don't feel they are getting value for money. And, of course, Labour gas failed to put this right overnight.

Chocolatelovinggran

PoliticsNerd, CGT only applies to second homes. Your primary residence is exempt.

Quite. Houses are a different argument to income in my opinion. Perhaps that could be another thread? There is probably quite an in depth discussion to be had.

I did say in my post it was a second house.
We bought it for my S who was in what turned out to be a doomed relationship.
I would have kept it and rented it out, eventually downsizing into it ourselves but my H didn’t like that idea.

One argument would be that taxing income disproportionately affects 'working people' who are also means-tested in the name of 'targeting' things that the better off are less likely to need, such as top-up benefits. Many people become persuaded that those who 'can afford' to pay for things such as prescriptions or bus passes should do so, and even the pensions of those who have paid decades of NI are routinely threatened with means-tests, which are a means of keeping people 'in their place'.

Those with inherited wealth, or who have 'made' money passively on property that has risen in value, on the other hand, pay lower rates of tax, and those who can afford not to work at all (so don't have an income) also escape paying direct taxes. I would argue that VAT on goods bought with someone else's money does not mean that the person doing the shopping is paying tax, but maybe that is debatable.

Capital gains are not necessarily income. We are paying a small amount of caapital gains this year because we sold our holiday cottage in France last year.

We simply turned a stone and mortar asset into a cash asset. A one year event, not to be repeated. It wasn't very much and we spent far more renovating the property than we made in capital gains over 33 years.

M0nica

Capital gains are not necessarily income. We are paying a small amount of caapital gains this year because we sold our holiday cottage in France last year.

We simply turned a stone and mortar asset into a cash asset. A one year event, not to be repeated. It wasn't very much and we spent far more renovating the property than we made in capital gains over 33 years.

If it isn't 'income', what is it, MOnica.

It is an addition to the revenue/income you have available to spend or save as you wish. What you put into it over the years was purely for your own benefit. It would have been different if you were using it for a business.

You are comparing apples with pears.

What ever the tax is called, it is taxation. No 'apples and pears' about it.

It appears you may be suggesting the first argument is "specious" because it doesn't align with your beliefs, rather than engaging with the actual reasoning or evidence behind it.

The double taxation argument is specious. The state issued money is taxed over and over again until it is finally taxed away.

AI explains:
Start
🧾 Step 1: Income Tax and National Insurance (when earned)
Let’s say a person earns £100 in wages.

Assume they are a basic-rate taxpayer:

Income tax: 20%

Employee National Insurance (NI): 8% (approx., varies slightly)

Net income after tax and NI:

£100 – £20 (income tax) – £8 (NI) = £72

So £28 is taxed immediately when the person earns the money.

🛍 Step 2: Spending the Money (VAT)
Suppose they spend the £72 on goods and services subject to 20% VAT (standard rate in the UK).

£72 / 1.20 = £60 (pre-VAT price)

£12 is VAT

So now another £12 is taxed, and only £60 reaches the business providing the goods.

🏢 Step 3: Business Taxes
That £60 is now business revenue. Let's suppose the business:

Pays 25% Corporation Tax on profits

Spends 50% on costs (e.g., wages, materials)

So profit = £30

Tax = 25% of £30 = £7.50

Now, £7.50 is taxed again.

👷 Step 4: Repaid as Wages (Recycled Earnings)
Assume the business pays the remaining £30 as wages to staff. Again:

Income tax = 20% → £6

NI = 8% → £2.40
= Total tax: £8.40

The worker keeps: £21.60

🛒 Step 5: That worker spends the £21.60 (again taxed with VAT)
VAT = £3.60

Business gets: £18

📊 Total Tax Collected So Far:
StageAmount Taxed
Income tax + NI (Step 1)£28.00
VAT on initial spending£12.00
Corporation tax£7.50
Income tax + NI (Step 4)£8.40
VAT on next spending£3.60
Total£59.50

So of the original £100, ~£59.50 has been taken as tax by the time it has cycled through two earn-and-spend loops.

🔁 What if it continues cycling?
Each round of wages and spending is taxed again at each stage (income tax, NI, VAT, corp tax), although diminishing returns apply as less money remains.

Over infinite cycles, almost the entire original £100 would be taxed away—though in practice, savings, tax shelters, and consumption choices change this.

Finish

AI has no biases

Just in case anyone believes this silliness of course AI can be wrong. It basically depends on data used in the training, which may reflect historical inequalities, stereotypes, or incomplete information.

PoliticsNerd

Just in case anyone believes this silliness of course AI can be wrong. It basically depends on data used in the training, which may reflect historical inequalities, stereotypes, or incomplete information.

This…..

The issue I have with CGT is that there is no allowance for inflation. No issue with gains above inflation being taxed at the same rate as income tax.