The fall of the Tory party

Just coming out of covid and we are about to get hit with Austerity part 2, surely the time is right for raising taxes on the wealthy?

Two of the suggestions from Tax Justice UK (including Patriotic Millionaires):
Raising capital gains tax to be in line with income tax
1% wealth tax on those with over £10million

This seems like a no brainer, right? This will raise ~£37billion and be borne by a small section of the population.

*Come at me with arguments about those poor people with no income but large houses in Kensington who will be forced to sell up.

This will raise ~£37 billion

I think the problem with wealth taxes is that it's trivially easy to shuffle wealth around the world and avoid these sorts of taxes nowadays. I have a memory that the French give up on their wealth tax because it was too hard to administer and didn't raise a great deal?

The capital gains tax changes make total sense to me. TBH I would go further and tax inheritances as income as well.

Worth keeping in mind that HMRC is so badly underfunded that they aren't even really keeping on top of collecting tax from low and middle earning self employed people as they should be. To use a recently popular phrase, HMRC are at breaking point.

I feel like CGT and inheritance tax should be higher than income tax. Like, if you worked to earn it you should pay less tax than if you just got it for free.

if you just got it for free

All those of us that aren't 100% bought into the labour theory of value are triggered by this statement. In a normal economy (i.e. not QE/ZIRP) there should be some sort of price for risk capital.

Some, yes, I don’t think 100% tax would work, but the thing that separates rich and comfortable from those on the treadmill is assets, not income, and CGT is the niftiest way to tax assets without worrying about kicking Aunt Flo out of her Kensington townhouse.

The French still have a progressive wealth tax based on property only.

Not the same tax but this was a clever way of spotting undeclared property wealth:

https://www.theguardian.com/world/2022/aug/29/french-tax-officials-use-ai-to-spot-20000-undeclared-pools

I'm not especially bothered about Aunt Flo, but I think the issue with CGT is it really only kicks in when you have realisations. If you are sufficiently wealthy you can indefinitely borrow against your asset base (or harvest its dividend income) to support your lifestyle and never trigger CGT.

Taxing unrealised gains is a hard problem (and raises the obvious questions of how they are valued and how you treat unrealised losses).

without worrying about kicking Aunt Flo out of her Kensington townhouse

Allow it to be deferred until Aunt Flo dies.

Should be tied to a UK resident person to defer though, payable immediately for any properties owned by companies, on or off-shore.

Yep, was going to write that France still has a wealth tax.

I also think that the current climate is much changed since 1998 when France introduced it (to much criticism). And since 2018 when Macron reduced its scope. Apparently 68% of people in the UK agree and only 7% disagree with a wealth tax.

Completely agree about inheritance tax as well.

The French still have a progressive wealth tax based on property only.

Liked the article on pools!

Just looked this up, assume you are talking about the taxe foncière? Interesting concept, the way it's calculated it ends up looking a bit like the tax on imputed rent that they have in the Netherlands. It actually makes quite a bit of sense - you get a "benefit in kind" from living in a property you own, this can be thought of as a dividend on an investment.

I guess back in the day the council tax system would have achieved a similar thing, but the top rates are now a joke in places with high value properties.

The US obviously has a pretty high property tax, but from what I've seen of how it is applied, the proceeds stay very local so it just makes rich places even nice and doesn't achieve any redistribution.

One of the things that "classic liberals" like the Adam Smith Institute try to ignore and pretend never happened is that Adam Smith himself was strongly in favour of inheritance tax and some kind of wealth tax. He also thought high profits were a sign of a country heading for ruin.

I don’t disagree, but one of the benefits of making the levels the same across each type is it removes many of the incentives to disguise one type of income as another. I expect if inheritance was taxed higher than income then a bunch of schemes would appear with the effect that large inheritances would start being manipulated into structures that allowed the beneficiaries to end up taking the value as income

(I don’t know how, but I’m sure some enterprising type will figure out the details)

I'd love to see CGT at 28% for primary residences as well as other properties. Can't think of any reason why somebody should avoid paying capital gains after benefitting from a rise in property value. You home has increased in value by 200k since you bought it? Great, that'll be £56k please.

Maybe there is an argument to get rid of the CGT personal allowance and possibly raise rate for chargeable assets from 20% to 28% but as others have pointed out, you don't want do discourage people from taking risks with their capital.

I think the argument against is the issue with inflation - you make a gain but need to buy a new place so you need the money, otherwise every move makes you poorer.

Sdlt does this already, mind

tax on imputed rent that they have in the Netherlands

This sounds like a good idea - presumably needs a bit of thought to prevent it leading to vacant property but that doesn't seem unfixable?

In my example you'd still be making a £144k profit. Maybe deduct SD as a maintenance cost or scrap SDLT altogether. As for inflation, cry me a river. You'd have to have pretty high inflation to cancel our a £144k cash profit over 10 years or so. Besides, it's not cash you had for that ten years. The gain only appears when you realise the equity in your property.

If there's one thing that's certain about all the nut job Adam Smith worshiping 'liberals' it's the fact that they've never actually read any Adam Smith.

I think you'd need some form of rollover relief if you were selling to buy another property though (assuming the market didn't magically correct).

Although that 200k increase looks good on paper, often in reality it means that the property you want to buy has increased by £300k.

(I don’t know how, but I’m sure some enterprising type will figure out the details)

Quite right. I’m just the chancellor in this scenario, the civil servants will sort the details and shut the loopholes.

The bloke who lives at the end of my road has 100 or so houses and about 3,000 acres I think and hasn’t had to worry about giving 40% to the tax man over the last 300 years that they’ve been handing it all down.

We have had really high inflation though. The 144k cash profit is exactly because there has been ridiculous inflation in house prices, so the next house you buy costs lots more too. Do you count selling one house to buy a bigger one "realisation"?

presumably needs a bit of thought to prevent it leading to vacant property but that doesn't seem unfixable

I am not hugely familiar with it but I assume you still charge the tax if the property is vacant? Like rates on commercial property it actively incentivises occupation (whether by the owner or a tenant).

You'd have to have pretty high inflation to cancel our a £144k cash profit over 10 years or so

Isn't the point that in the usual way of things (i.e. people move to bigger houses over their life) the house that you might want to buy has gone up by more than £144k?

I think the only way that primary residence CGT works is if you are allowed roll it to the next property to the extent that you recycle the proceeds of one house sale into another. But in that case it looks like IHT anyway.

Although that 200k increase looks good on paper, often in reality it means that the property you want to buy has increased by £300k.

But that's just assuming you should just be able to buy another more expensive property based solely on the fact your property has increased in value, rather than the fact you've earned more money elsewhere or are able to get a bigger mortgage.

It's not just a problem when upgrading. It would be an issue if you wanted to move to another part of the country and buy a similarly-valued house. It would cause problems for household formation when each party owned a property beforehand.