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

David49

PoliticsNerd

I would agree with you about the difference in wealth and income growstuff. We seem (and I'm certainly culpable, so apologies there) to have ended up discussing both a wealth tax - possibly on the top 1% of the extremely wealthy - and a change in income tax to bring forms of income, earned and passive, under the same levels of taxation.

Like you, I know two people who set up their businesses in the 70s when they were lucky enough to have the skills of that time. Started at home and working out in their garages, both ended up with large companies and being the largest employer in their area. I seriously doubt either are in the top 1% - the group that it has been suggested for a wealth tax, but they will undoubtedly be in the middle wealth section. This middle wealth group are the one I believe we need to encourage, not tax.

I know many in the top 1% in wealth (£2m plus) all self employed, all built the wealth from long term growth, all work long hours, all invested spare money in expanding the business. None have extravagant lifestyles, none have attended university, they developed a skill and can convince others to invest in them.

You build wealth by not spending money, the only downside is you build a large IHT liability, most will gift the assets usually to family. It’s at that stage they should be taxed more, when assets are transferred, avoiding IHT by gifting is too easy.

I’m not very supportive of inherited wealth because it’s a disincentive to enterprise, only 4% of estates pay IHT, this is too low, in principle all transfers of wealth should pay some tax.

David I know somebody who was once in the top 100 wealthiest people in the country. He most certainly did not become wealthy by not spending it - quite the opposite. He's a hedge fund manager and became wealthy by shrewd purchases and sales.

To be fair to him, he also makes huge charitable donations - to the benefit of his local area and his interests. I have no reason to believe he doesn't pay the tax he should.

MaizieD

^Not only that, but nobody (including the government) has suggested taxing wealth ie assets,^

I find it odd that you should say that, growstuff because my understanding is that that is just what is being proposed by various people (not the government, of course) either as a 1 or 2% charge on total wealth, which must, surely include the value of assets.
I haven’t seen any detail associated with this proposal, so can’t critique it any further than point out its weakness, which is the great difficulty in ascertaining and valuing assets. I think it’s an unworkable idea.

Sorry, I should have worded that differently. I meant nobody on Gransnet and - as far as I know - not Rachel Reeves. I know that there have been mutterings by some in the Labour Party, but (like you) I don't see that it would be workable - and certainly not for some time.

On the other hand, it would be much easier to tax pension contributions at basic rate tax for everybody and cap ISA contributions at a lower threshold. Doing both would raise a considerable amount and I really don't think there are rational arguments against either.

In any case, this thread is supposed to be about CGT not wealth tax. IMO both should be at the same rate.

Maizie this was from MoneyWeek - not a publication I know much about but it makes the point that although the Labour Party is very quiet on Wealth Tax there seems to be muttering in the ranks. This was from the July addition.

In October last year, a dozen Labour MPs joined a cross-party call for a 2% wealth tax on assets worth more than £10 million, claiming this could raise £24 billion per year for the government.

Former labour leader Neil Kinnock renewed calls for a tax of this kind in an interview with Sky News on 6 July. Trade unions including Unite have previously voiced their support for a wealth tax, as has the Green Party, Oxfam and lobby group Tax Justice UK.

PoliticsNerd

I would agree with you about the difference in wealth and income growstuff. We seem (and I'm certainly culpable, so apologies there) to have ended up discussing both a wealth tax - possibly on the top 1% of the extremely wealthy - and a change in income tax to bring forms of income, earned and passive, under the same levels of taxation.

Like you, I know two people who set up their businesses in the 70s when they were lucky enough to have the skills of that time. Started at home and working out in their garages, both ended up with large companies and being the largest employer in their area. I seriously doubt either are in the top 1% - the group that it has been suggested for a wealth tax, but they will undoubtedly be in the middle wealth section. This middle wealth group are the one I believe we need to encourage, not tax.

I know many in the top 1% in wealth (£2m plus) all self employed, all built the wealth from long term growth, all work long hours, all invested spare money in expanding the business. None have extravagant lifestyles, none have attended university, they developed a skill and can convince others to invest in them.

You build wealth by not spending money, the only downside is you build a large IHT liability, most will gift the assets usually to family. It’s at that stage they should be taxed more, when assets are transferred, avoiding IHT by gifting is too easy.

I’m not very supportive of inherited wealth because it’s a disincentive to enterprise, only 4% of estates pay IHT, this is too low, in principle all transfers of wealth should pay some tax.

Not only that, but nobody (including the government) has suggested taxing wealth ie assets,

I find it odd that you should say that, growstuff because my understanding is that that is just what is being proposed by various people (not the government, of course) either as a 1 or 2% charge on total wealth, which must, surely include the value of assets.
I haven’t seen any detail associated with this proposal, so can’t critique it any further than point out its weakness, which is the great difficulty in ascertaining and valuing assets. I think it’s an unworkable idea.

I would agree with you about the difference in wealth and income growstuff. We seem (and I'm certainly culpable, so apologies there) to have ended up discussing both a wealth tax - possibly on the top 1% of the extremely wealthy - and a change in income tax to bring forms of income, earned and passive, under the same levels of taxation.

Like you, I know two people who set up their businesses in the 70s when they were lucky enough to have the skills of that time. Started at home and working out in their garages, both ended up with large companies and being the largest employer in their area. I seriously doubt either are in the top 1% - the group that it has been suggested for a wealth tax, but they will undoubtedly be in the middle wealth section. This middle wealth group are the one I believe we need to encourage, not tax.

David49

growstuff

David49

By all means have a wealth tax as a sop to the socialists, which still means revenue has to be raised from the rest of the population. It seems to me that those below average income are under pressure now which means that taxes should be increased for those above average income/wealth.

Income is not the same as wealth David. Which do you mean?

If you have a high income you have 2 choices, you can spend it on big houses, fast cars, expensive holidays, or you can invest it, build a business and live frugally.

If it’s spent year by year wealth will be limited, even so they will have a nice house a pension and likely other investments, easily over £1m. The really wealthy live frugally and build a business, they see an opportunity, persuade others to back them, over a lifespan much wealth can be amassed.

Generally high income gets spent sensibly because management level employment and above you are pretty clued up. Your residential property is tax free until you die which fuels house price inflation, most other spending is taxed heavily

Yes, I get that, but your posts aren't clear about the difference between assets and income - and there is a difference. Not only that, but nobody (including the government) has suggested taxing wealth ie assets, so I'm not at all sure what your argument is.

I'm not sure how many really wealthy people you know. I know just one, but he doesn't fall into any of the categories you describe. My partner was (before he retired) one of the top 10% of earners, but he didn't fall into any of the categories either.

You haven't addressed the OP, which is why people who earn their money through a standard PAYE job pay a higher rate of tax than somebody who has (for example) inherited money and earns money by , for example, buying and selling property or other valuable items.

Who, other than you is suggesting a weath tax, at this point, on people with wealth of £1 million David49.

The "middle class" in the UK is normally seen as a both social and an economic concept that covers a range of incomes and lifestyles. However, it is sometimes described, for purposes such as taxation, by wealth. One example of this is to take the top 20% minus the top 1%.

This is because the top 20% of households own around 65-70% of total household wealth. The top 1% alone own about 20-25% of total wealth. Therefore, if you exclude the top 1%, the top 20% (minus the top 1%) would hold roughly 40-45% of the total wealth in the UK.

At just less than half the wealth this can be seen as the "middle". This is not the group we have seen people suggesting a wealth tax on. However, I would find it worrying if the government did exactly that as this government may be tempted too do.

growstuff

David49

By all means have a wealth tax as a sop to the socialists, which still means revenue has to be raised from the rest of the population. It seems to me that those below average income are under pressure now which means that taxes should be increased for those above average income/wealth.

Income is not the same as wealth David. Which do you mean?

If you have a high income you have 2 choices, you can spend it on big houses, fast cars, expensive holidays, or you can invest it, build a business and live frugally.

If it’s spent year by year wealth will be limited, even so they will have a nice house a pension and likely other investments, easily over £1m. The really wealthy live frugally and build a business, they see an opportunity, persuade others to back them, over a lifespan much wealth can be amassed.

Generally high income gets spent sensibly because management level employment and above you are pretty clued up. Your residential property is tax free until you die which fuels house price inflation, most other spending is taxed heavily

What kind of mentality do you think would work?

Cumbrianmale56

The top rate of income tax in this country is 45%. I think this is fair as the wealthy will still keep the bulk of what they earn, while contributing a large chunk of tbeir earnings to society. Most Western countries now have at top rate of income tax of 40-50% and the sorts of income tax rates the UK and Sweden once had ( 80-90%) are long gone as they were seen to fail and led to tax evasion. The bash the rich mentality that still sadly exists among some socialists in this country doesn't work.

Maybe you could explain why those in the upper tax band should receive higher tax relief on their pension contributions. They are receiving a much bigger subsidy from the government than those paying basic rate tax and far more than the very lowest earners, who possibly aren't making any pension contributions.

How is that fair?

Incidentally, the Treasury would receive billions, if these people didn't receive their subsidies.

David49

By all means have a wealth tax as a sop to the socialists, which still means revenue has to be raised from the rest of the population. It seems to me that those below average income are under pressure now which means that taxes should be increased for those above average income/wealth.

Income is not the same as wealth David. Which do you mean?

David49

In which case I’m an unbalanced centrist because I think the middle classes have had it too good, they have a lot of wealth AND they have a lot of free welfare services they can well afford to pay for

When you say that the middle classes have had it too good what do you want governments to do about it? If you set a weath tax, say for the higher middle income - possibly in the next budget - you will just end up putting the super-rich in a position to buy even more of the countries assets.

There are areas where the middle-class scream too loudly, I agree. At this point in time I would personally want them to lean more towards helping those on the lowest incomes - balancing against what has happened under the Conservatives.

We grow our country through the existing middle-class and those from the working class who are given the opportunity to thrive and use their talent. If taxation is mainly on the middle incomes, all that will happen is more assetts will be gathered in by the very rich and super rich and the whole country becomes poorer. Why would you want that?

Probably something other than a centrist then David49.

In which case I’m an unbalanced centrist because I think the middle classes have had it too good, they have a lot of wealth AND they have a lot of free welfare services they can well afford to pay for

David49

By all means have a wealth tax as a sop to the socialists, which still means revenue has to be raised from the rest of the population. It seems to me that those below average income are under pressure now which means that taxes should be increased for those above average income/wealth.

I think you may find it's not only socialists who are suggesting this David49 although it may suit your own bias to think so.

Any well balanced Centrist will typically view sustaining the middle classes as a crucial component of economic stability and social cohesion. They believe that supporting the middle class helps promote a balanced economy, reduces inequality, and fosters social mobility.

This centrists would advocate for policies such as reasonable taxation, investments in education and healthcare, and economic reforms that enable middle-income families to thrive. I'm all for pragmatic solutions that balance market efficiency with social protections; those which aim to create an environment where the middle class can flourish and contribute to overall national prosperity.

If we had swung as far to the left as we are currently moving to the right I would be saying exactly the same things. Balance is everything.

In the post WW2 period income tax on the wealthiest was 75%! There were also restrictions on the amount of capital which could be taken out of the country. It led to the greatest movement towards a more equitable distribution of the nation's money than before or since. And, to excellent growth.

Yeah Maizie!

This isn't 'bash the rich', this is government controlling the way that the money which it, the government, spends into the economy, to promote economic activity and a more equitable share of that money.

As you say, the extremely, and I would say excessively rich find it hard to spend their money so end up pushing up the price of assetts, leaving the poorest, then the government, then those in the middle unable to buy them. They do get use of some of them but that becomes an income making vehicle for one person and a deprivation of capital for another. To add to your "after the war" note, the rent protection and the security of tenure measures introduced during the war were also carried on well after it.

By all means have a wealth tax as a sop to the socialists, which still means revenue has to be raised from the rest of the population. It seems to me that those below average income are under pressure now which means that taxes should be increased for those above average income/wealth.

In the post WW2 period income tax on the wealthiest was 75%! There were also restrictions on the amount of capital which could be taken out of the country. It led to the greatest movement towards a more equitable distribution of the nation's money than before or since. And, to excellent growth.

This isn't 'bash the rich', this is government controlling the way that the money which it, the government, spends into the economy, to promote economic activity and a more equitable share of that money.

The top rate of income tax in this country is 45%. I think this is fair as the wealthy will still keep the bulk of what they earn, while contributing a large chunk of tbeir earnings to society. Most Western countries now have at top rate of income tax of 40-50% and the sorts of income tax rates the UK and Sweden once had ( 80-90%) are long gone as they were seen to fail and led to tax evasion. The bash the rich mentality that still sadly exists among some socialists in this country doesn't work.

I think it depends what you are hoping to achieve David.

We have been in this situation before in history. It took a long time to establish democracies rule over wealth. Around the world this has been being reversed for some time. Powerful groups of left or right will try to overturn democracy as power brings them wealth and excessive wealth brings power.

That rarely, if ever, works in favour of the average person.

I’m suggesting that to raise a worthwhile amount of revenue it has to be applied at below £1m. At the £10m level its a purely idealogical tax that won’t gain significant revenue, certainly not the tens of billions the economy needs.

growstuff

David49

Growstuff

You know very well that anyone with a mortgage paid off and a nice pension fund has considerable wealth, it’s this group that holds a major part of the wealth of the UK, 37% as Private Property, 43% as pensions.
The Average wealth of to top 20% in the UK is £1.2m currently, that wealth is unlikely to be taxed at all. There is little point in a wealth tax unless it taxes £1m and upwards.

I have never advocated a wealth tax!!!

However, I see no earthy reason why interest or earnings on that wealth should not be taxed as income tax.

The suggestions made have been for tax on wealth above £10 million David49.

Are you seriously suggesting that this will include anyone with a mortgage paid off and a nice pension fund? You are talking about the fiscal middle and they need protecting as everyone I've heard talking about a weath tax agrees.

As I said, when you find my stash of over £10 million, please let me know!

I think that people are working from a very narrow definition of 'income' when they are commenting on these sorts of threads.

The Collins Dictionary's definition of 'income' is:

A person's or organization's income is the money that they earn or receive, as opposed to the money that they have to spend or pay out.

I completely fail to understand why, for example, 'capital gains' is claimed to be 'not' income when it is plainly money that is received. No explanation is forthcoming.

Likewise, the word 'taxation' used in connection with taxing wealth, is always assumed to be income tax (which doesn't go anywhere near taxing their 'income') and other taxes and forms of taxation are ignored.

David49

Growstuff

You know very well that anyone with a mortgage paid off and a nice pension fund has considerable wealth, it’s this group that holds a major part of the wealth of the UK, 37% as Private Property, 43% as pensions.
The Average wealth of to top 20% in the UK is £1.2m currently, that wealth is unlikely to be taxed at all. There is little point in a wealth tax unless it taxes £1m and upwards.

I have never advocated a wealth tax!!!

However, I see no earthy reason why interest or earnings on that wealth should not be taxed as income tax.