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

Norah

growstuff

It's OK Norah. I know that people can build wealth - but it's not possible if a person has an average income and doesn't receive any legacies.

This isn't envy, by the way. My own children are about to receive substantial legacies and I don't begrudge them. I wouldn't trade in my own health and feeling of contentment for any money in the world (that's not to say I wouldn't mind having a bit more money - who wouldn't?)

Nevertheless, I am concerned about the increasing inequality in the UK (and other parts of the world). Not only is it unfair, but it's detrimental to societies (and a breeding ground for chancers like Reform).

Wealth can easily be built without legacies, out of income. Many have successful profitable businesses started out excess income from working.

Yes, I accept that. However, the income (or dividends) would have to be very high to have excess income which could be saved.

The main asset could be the business, which could go bankrupt or depreciate. Its full worth won't be realised until it's sold and even then there's not much point keeping the money in a current account. The money would need to be invested somehow or other.

In any case, building up a small business requires work. It's not just about saving and being frugal. As I quoted earlier, the average income (before deductions) in the UK is about £38k - and that means that half of all people earn less than £38k. It really is impossible for them to "save" enough to acquire enough to be in the top 1%, especially as the tax system overall is skewed against low and low middle earners.

Wealth can easily be built without legacies, out of income. Many have successful profitable businesses started out excess income from working.

But growstuff demonstrated how this was not possible unless one earned a very high income. Which most people don't. The maths are against you...

Moii

There is generally risk involved in capital gains income, if it's increased people will be less likely to invest and take risk which isn't good for the economy.

Not always.

If you buy a property and later resell it at a price which would trigger CGT because house prices have risen, where's the risk? There's only a risk if the property has been bought specifically in the expectation that property prices will rise and a profit can be made on selling. That's speculation not investment.

What sort of 'investment' that people are 'less likely 'to do are you thinking of? How many people actually invest in business start ups or shares put on the market to raise extra capital?

David49

So you move the goalposts and talk about earned income instead of wealth.
One thing for sure if your horizons are being an employee on PAYE you're never going to be wealthy.

Did you read the OP David49? I have a strong feeling you didn't. It was about two types of income. I know this because I wrote it!

Yes, the thread has expanded along the way but surely that isn't a problem unless someone is out to derail it and that isn't what has happened on this thread, or is it?

If you didnt understand/remember the OP that may explain the bitterness of your last sentence.

growstuff

It's OK Norah. I know that people can build wealth - but it's not possible if a person has an average income and doesn't receive any legacies.

This isn't envy, by the way. My own children are about to receive substantial legacies and I don't begrudge them. I wouldn't trade in my own health and feeling of contentment for any money in the world (that's not to say I wouldn't mind having a bit more money - who wouldn't?)

Nevertheless, I am concerned about the increasing inequality in the UK (and other parts of the world). Not only is it unfair, but it's detrimental to societies (and a breeding ground for chancers like Reform).

Wealth can easily be built without legacies, out of income. Many have successful profitable businesses started out excess income from working.

There is generally risk involved in capital gains income, if it's increased people will be less likely to invest and take risk which isn't good for the economy.

David49

So you move the goalposts and talk about earned income instead of wealth.
One thing for sure if your horizons are being an employee on PAYE you're never going to be wealthy.

There's nothing wrong with being an employee, David. Tthe problem is when employees don't get anywhere near a reasonable share of the profits which their work is vital to. If all employees were to down tools tomorrow we'd soon see that they are as vital to the economy as the people who employ them.

Not everyone is an entrepreneur and they shouldn't be looked down on or paid a pittance that is impossible to comfortably live on while business owners make big profits and look for ways to minimise their taxes.

I'm not for a minute saying that all employers do this, but the fact that people have to be paid benefits by the state when they are actually employed and that more than 20% of the UK population lives in poverty, doesn't look too good, does it?

growstuff

Funnily enough David you'd be surprised. I realise you suffer from inverted snobbery, but a university education hasn't stopped me from using my imagination and experience or having a very wide circle of friends and acquaintances. What my education has given me is an ability to be objective and to fight against being blinkered.

I know very well how small businesses work. My ex-husband ran one, as did my late father-in-law, although his small business became quite big. My ex-husband hasn't worked for decades, but has a property portfolio which provides an income. He doesn't "save" anything and certainly doesn't live frugally. My father-in-law got to the point where he didn't need to work either and his widow lived for years on the interest. Thinking about it, most of the people I would call friends run small businesses.

Then you do know how it all works so why try to deny it by posting nonsense about doing out of savings

It's OK Norah. I know that people can build wealth - but it's not possible if a person has an average income and doesn't receive any legacies.

This isn't envy, by the way. My own children are about to receive substantial legacies and I don't begrudge them. I wouldn't trade in my own health and feeling of contentment for any money in the world (that's not to say I wouldn't mind having a bit more money - who wouldn't?)

Nevertheless, I am concerned about the increasing inequality in the UK (and other parts of the world). Not only is it unfair, but it's detrimental to societies (and a breeding ground for chancers like Reform).

growstuff

No, you're not living in reality Norah. Somebody with earned income would have to have a great deal of excess to be able to accumulate £3.5 million.

You mentioned legacies, which aren't earned income, and increase in property value, which isn't earned income either.

Claims that anybody with anything like an average income can just save and be frugal are absolute nonsense.

growstuff Incidentally, I've been looking up how much wealth one needs to be in the top 1% in the UK. There is no standard definition/way of calculating it, but the figures given are somewhere between £3.5 and £5.5 million. The top 0.1%, of course, have considerably more than that. I really don't think anybody could acquire that kind of money (even by retirement) just by saving excess earned income and frugal living - unless they had an extremely high income.

I misunderstood.

People easily build wealth. Frugal saving, careful purchases, property values, inflation, interest, gains and maybe for some - legacies.

So you move the goalposts and talk about earned income instead of wealth.
One thing for sure if your horizons are being an employee on PAYE you're never going to be wealthy.

PoliticsNerd

^I’m really amazed that many posters on GN do not have a clue how wealth accumulates in a business, I suppose it’s the handicap of a university education limiting horizons.^

Meow. Why don't you start thinking you know more than everyone else? Oh, you just did. It seems to be the GN style of communication!

It seems the way for some posters.

Funnily enough David you'd be surprised. I realise you suffer from inverted snobbery, but a university education hasn't stopped me from using my imagination and experience or having a very wide circle of friends and acquaintances. What my education has given me is an ability to be objective and to fight against being blinkered.

I know very well how small businesses work. My ex-husband ran one, as did my late father-in-law, although his small business became quite big. My ex-husband hasn't worked for decades, but has a property portfolio which provides an income. He doesn't "save" anything and certainly doesn't live frugally. My father-in-law got to the point where he didn't need to work either and his widow lived for years on the interest. Thinking about it, most of the people I would call friends run small businesses.

No, you're not living in reality Norah. Somebody with earned income would have to have a great deal of excess to be able to accumulate £3.5 million.

You mentioned legacies, which aren't earned income, and increase in property value, which isn't earned income either.

Claims that anybody with anything like an average income can just save and be frugal are absolute nonsense.

I’m really amazed that many posters on GN do not have a clue how wealth accumulates in a business, I suppose it’s the handicap of a university education limiting horizons.

Meow. Why don't you start thinking you know more than everyone else? Oh, you just did. It seems to be the GN style of communication!

growstuff

Norah

growstuff

David49

You hear about the rouges that break the rules, most taxpayers do pay what’s due, these days accountants are very aware what is allowed and what isn’t. With tax being computerized it’s very easy for the revenue to spot fiddles, and where there is one there are probably more.

Sorry, but what's that got to with equalising income tax and CGT?

Great, if more tax fraud is detected, but that's another discussion.

Incidentally, I've been looking up how much wealth one needs to be in the top 1% in the UK. There is no standard definition/way of calculating it, but the figures given are somewhere between £3.5 and £5.5 million. The top 0.1%, of course, have considerably more than that. I really don't think anybody could acquire that kind of money (even by retirement) just by saving excess earned income and frugal living - unless they had an extremely high income.

growstuff Incidentally, I've been looking up how much wealth one needs to be in the top 1% in the UK. There is no standard definition/way of calculating it, but the figures given are somewhere between £3.5 and £5.5 million. The top 0.1%, of course, have considerably more than that. I really don't think anybody could acquire that kind of money (even by retirement) just by saving excess earned income and frugal living - unless they had an extremely high income.

I think you're incorrect to how much wealth people can acquire.

People can and do save excess income, they also may receive a legacy, earn tax free in ISA, pensions, premium bonds, own homes that appreciate a bit.

Paying mortgage quickly yields a monthly savings for many years.

I think you're living in a dream world. David was suggesting that people can be in the top 1% from saving excess income and being frugal.

Acquiring £3,500,000 from savings over a 35 year period would mean saving £100,000 a year (ignoring interest and inflation). The mean income for all workers in the UK in 2024 (before tax) was £38,224pa. It doesn't take Einstein-level maths skills to work out that most people can never become wealthy by saving from income.

Why only 35 years? Are you assuming saving excess from income, inflation, profits, and gains are level in each of the 50-70 years?

I'm not living in a dream world, just reality.

You have no imagination Growstuff you are tied by household economics with a business wealth can multiply very quickly.
For example Joe Bamford left the family farm machinery business to build JCB excavators, 75 yrs later his family are now worth £10 billion , many other examples if you look around.

I’m pretty slow I built my modest house in 1970 it cost £3500 it’s now worth £600k I borrowed to buy business property, paid of the loan and borrowed even more. Interest rates were much higher 10, 12 even 15% it didn’t matter interest rates on business loans are tax deductable, inflation at that time was 20, 25% so whatever I bought was worth that much more next year.

I’ve found it easy to make money, controlling spending is much harder, before anyone asks, I do pay a lot of tax.

I’m really amazed that many posters on GN do not have a clue how wealth accumulates in a business, I suppose it’s the handicap of a university education limiting horizons.

Norah

growstuff

David49

You hear about the rouges that break the rules, most taxpayers do pay what’s due, these days accountants are very aware what is allowed and what isn’t. With tax being computerized it’s very easy for the revenue to spot fiddles, and where there is one there are probably more.

Sorry, but what's that got to with equalising income tax and CGT?

Great, if more tax fraud is detected, but that's another discussion.

Incidentally, I've been looking up how much wealth one needs to be in the top 1% in the UK. There is no standard definition/way of calculating it, but the figures given are somewhere between £3.5 and £5.5 million. The top 0.1%, of course, have considerably more than that. I really don't think anybody could acquire that kind of money (even by retirement) just by saving excess earned income and frugal living - unless they had an extremely high income.

growstuff Incidentally, I've been looking up how much wealth one needs to be in the top 1% in the UK. There is no standard definition/way of calculating it, but the figures given are somewhere between £3.5 and £5.5 million. The top 0.1%, of course, have considerably more than that. I really don't think anybody could acquire that kind of money (even by retirement) just by saving excess earned income and frugal living - unless they had an extremely high income.

I think you're incorrect to how much wealth people can acquire.

People can and do save excess income, they also may receive a legacy, earn tax free in ISA, pensions, premium bonds, own homes that appreciate a bit.

Paying mortgage quickly yields a monthly savings for many years.

I think you're living in a dream world. David was suggesting that people can be in the top 1% from saving excess income and being frugal.

Acquiring £3,500,000 from savings over a 35 year period would mean saving £100,000 a year (ignoring interest and inflation). The mean income for all workers in the UK in 2024 (before tax) was £38,224pa. It doesn't take Einstein-level maths skills to work out that most people can never become wealthy by saving from income.

I know I've just flagged up one of this chaps videos elsewhere but he seems to be on a roll (either that or he's talking about things I'm interested in ).

He's suggesting we do away with Council Tax and go for a land tax. Not a new idea, of course, but he is seeing it as an alternative Wealth Tax and a way of catching land hoarders.

I thought it might add another angle to our discussion.

www.youtube.com/watch?v=Kz5HXTY0HPU Titled Could Land Tax Fix The UK's Money Problems? (How land tax reform could unlock the billionaire tax).

Another dimension I know but it looks as if there will be much discussion in this whole area over the summer.

I'm not going to argue with Piketty.

🤣🤣🤣

Nor me, I haven't spent years researching a massive book about capital/wealth with data going back to the 18th century...

growstuff

David49

You hear about the rouges that break the rules, most taxpayers do pay what’s due, these days accountants are very aware what is allowed and what isn’t. With tax being computerized it’s very easy for the revenue to spot fiddles, and where there is one there are probably more.

Sorry, but what's that got to with equalising income tax and CGT?

Great, if more tax fraud is detected, but that's another discussion.

Incidentally, I've been looking up how much wealth one needs to be in the top 1% in the UK. There is no standard definition/way of calculating it, but the figures given are somewhere between £3.5 and £5.5 million. The top 0.1%, of course, have considerably more than that. I really don't think anybody could acquire that kind of money (even by retirement) just by saving excess earned income and frugal living - unless they had an extremely high income.

growstuff Incidentally, I've been looking up how much wealth one needs to be in the top 1% in the UK. There is no standard definition/way of calculating it, but the figures given are somewhere between £3.5 and £5.5 million. The top 0.1%, of course, have considerably more than that. I really don't think anybody could acquire that kind of money (even by retirement) just by saving excess earned income and frugal living - unless they had an extremely high income.

I think you're incorrect to how much wealth people can acquire.

People can and do save excess income, they also may receive a legacy, earn tax free in ISA, pensions, premium bonds, own homes that appreciate a bit.

Paying mortgage quickly yields a monthly savings for many years.

MaizieD

^ I really don't think anybody could acquire that kind of money (even by retirement) just by saving excess earned income and frugal living - unless they had an extremely high income.^

According to Piketty, one way they accumulate so much is by having investments that give them a return which is higher than the rate of inflation. or by holding assets that increase in value by more than the rate of inflation. It requires no effort on their part. He also says something about it being higher than the country's rate of growth, but I'm not sure how that works. I'd have to check it.

I do think that talking about CGT is connected with a tax on wealth, but, obviously it's more about the acquisition of wealth than actual possession of wealth.

I agree with you that it's connected. However, (as Richard Murphy has pointed out), there are more ways of taxing wealthy people than a direct tax on their wealth, which would be extremely difficult to administer. I also agree that it's about the acquisition of wealth.

I'm not going to argue with Piketty.

^ I really don't think anybody could acquire that kind of money (even by retirement) just by saving excess earned income and frugal living - unless they had an extremely high income.^

According to Piketty, one way they accumulate so much is by having investments that give them a return which is higher than the rate of inflation. or by holding assets that increase in value by more than the rate of inflation. It requires no effort on their part. He also says something about it being higher than the country's rate of growth, but I'm not sure how that works. I'd have to check it.

I do think that talking about CGT is connected with a tax on wealth, but, obviously it's more about the acquisition of wealth than actual possession of wealth.

David49

You hear about the rouges that break the rules, most taxpayers do pay what’s due, these days accountants are very aware what is allowed and what isn’t. With tax being computerized it’s very easy for the revenue to spot fiddles, and where there is one there are probably more.

Sorry, but what's that got to with equalising income tax and CGT?

Great, if more tax fraud is detected, but that's another discussion.

Incidentally, I've been looking up how much wealth one needs to be in the top 1% in the UK. There is no standard definition/way of calculating it, but the figures given are somewhere between £3.5 and £5.5 million. The top 0.1%, of course, have considerably more than that. I really don't think anybody could acquire that kind of money (even by retirement) just by saving excess earned income and frugal living - unless they had an extremely high income.

You hear about the rouges that break the rules, most taxpayers do pay what’s due, these days accountants are very aware what is allowed and what isn’t. With tax being computerized it’s very easy for the revenue to spot fiddles, and where there is one there are probably more.