CGT should be the same rate as income tax and reliefs abolishedMake Text Bigger
The left wing think tank, Institute for Public Policy Research (IPPR) has released a study titled ‘Reforming the taxation of income from wealth and work‘ which recommends the taxation of wealth in the same way as income. The IPPR claim that income inequality in the UK is one of the highest in the world and it is essential to redistribute increasing property wealth for economic justice.
This is aiming an attack directly at landlords and does not take into account the overall social effects that are taking place with landlords selling rental homes due to increased regulation, taxation and institutional hostility.
The effects of this are already being seen with HMRC reporting an 18% increase in Capital Gains Tax (CGT) payments in the last financial year from £7.8bn to £9.2bn.
The IPPR want CGT on the sale of property to be charged at the same rate as income tax. However, this does not take into account the risk taken by property investors as opposed to earned income that is risk free. Currently CGT is already 10% higher for the sale of rental and second homes than for other forms of investments. There is also the issue of double taxation where a landlord has likely paid tax already on the money saved to buy an investment property and then is taxed again upon its sale in addition to tax on the rental income during the life of the investment.
In Addition the IPPR also plan to reduce the annual exemption allowance on CGT from £12,000 to only £1,000.
The IPPR summary for their proposals said:
“First, we propose that income from wealth should be taxed the same as income from work. Capital gains should be taxed at the same rates as income from employment, and the separate reliefs applied to capital gains tax (CGT) should be abolished.
“A similar policy was last implemented by Conservative chancellor Nigel Lawson. Capital gains tax rates are substantially lower than they were pre-2008, and are currently taxed at much lower rates than income from work. Lower tax rates for the wealthy than for ordinary earners are fundamentally unfair; they also distort economic behaviour and create opportunities for tax avoidance.
“We estimate that these changes could raise up to £120 billion of additional revenue over five years, falling to £90 billion when accounting for potential behavioural effects. Removing the exemption of capital gains upon death could raise up to an additional £25 billion over the same time period, falling to £15 billion with behavioural effects.
“There are inevitably large uncertainties around these estimates, but even if the behavioural effects were larger, or we introduce an indexation or rate of return allowance (RRA), we would still expect these changes to raise significant sums. Our proposal would substantially increase revenues, while making the tax system fairer.”
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