What is Capital Gains Tax (CGT)?Capital Gains Tax is a tax on the profit or gain you make when you sell or ‘dispose of’ an asset.You usually dispose of an asset when you cease to own it - for example if you:
 It's the gain you make - not the amount of money you receive for the asset - that's taxed.
The tax is applied on the taxable amount. U.K exemptions to assets that are subject to capital gains tax.As of 2012-07-20
Capital gains tax applies on transferIn general any event that results in a transfer, such as giving money to someone, or having a divorce kicks off the capital gains tax. This has an effect of kicking you when you are down. The last thing you wish to do when going for a divorce or helping your kids in need is having to pay unecessarily for the privilege.
Questions about capital gains tax.Appeal to fairness
Why should people be taxed twice?
Prices go up with inflation, why should we be taxed on that?
Appeal to victimisation
How will the retired replace the expected earnings when they cant work anymore?
Appeal to simplicity
Is this yet another thing we have to do on our tax return?
Appeal to sense of control
Why does the government need more of our money? Don't we already pay enough?
Alos capital gains tax will reduce liquidity, why sell a property to buy another if it crystalises a tax. This will freeze up the property market.
That property you really wanted, was never listed on the market, and you will have to live further away from the school or pay more due to reduced supply.#
Capital gains tax is effectively a transaction tax. Having one will reduce transactions.
Could s capital gains tax bring in less revenue for the government and make the citizen worse off?
Example:
The assumptions below may or may not be realistic, but can show the principle it may be possible to make the citizen and government worse off under capital gains tax.
Lets say capital gains tax was 30%
And rate of return on money invested was 10% per year (for ease of calculations)
For simplicity lets say the government spend all the money raised on health. The citizen is sufficiently wealthy enough not to need spend the money. (Because that's who they really want to target).
Citizen A brought an asset in year 1 for $100 and sold in year 5 for $200
In the new scenario they would be taxed 30% on the $100 gain.
That means Citizen A pays $30 tax and keeps $70 reinvested compounding at 10% profit
In the new scenario the government gets
Year 5 $30
Year 6 $2.1 ($70 invested, 10% profit * 30% tax)
Year 7 $2.247 ($77-2.1 invested, 10% profit * 30% tax)
Following this though, the government make $94.2 over 20 years + $30 now.
Below that is a comparison in no capital tax is taken over 20 years. The Government makes 134.59 over 20 years and the citizen is $125 better off.
The gains become even more pronounced over 20 years.
Now the same calculation for no capital gains tax.
Discussion point on fairness of captial gains taxThe premise that capital gains tax, should be taxed is that it is a form of income. Other forms of income are taxed, and therefore why should this be different. Question 1 Are there different types of income? Capital gains are an increase of value, whereas wages are an exchange of work for income. If we parrallel assets and the income they derive with your skills/body with the income we derive. We tax the income from those skills, not the skills themselves. Question 2 When an asset goes up, some of that gain may be due to inflation. Is an infaltion gain income? Question 3 Are demands for capital gains due to resentment, or a reasoned position? Question 4 If you are more compentent at investing, should you be punished for that? Question 5 Should CGT be selected or apply without exemption to asset classe? How can it be fair if some classes are exempt and can be manipulated by governments. Can family homes and art, be excluded? Question 6 Does CGT penalise people saving for thier retirement? Question 7 Does CGT encourage governments to debase the money supply? ReferenceLinksLink333 HMRC CGT
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
 |
|