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

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

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

^ 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.

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.

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'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...

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.

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.

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.

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.

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!

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.

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.

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.

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.

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.