Nick Clegg’s recent ‘open society’ speech confirmed that increases taxes on wealth in some form is very much on the political agenda. However, the default party policy option – a mansion tax – was highly controversial in the party when it was introduced (which is rather a polite term for the rolling lesson in how to bungle a policy launch, annoy MPs, irritate party members and feed negative stories to the media all in one fell swoop).
In other words – now is a very good time for the party to be debating what form of wealth taxes it favours, especially after the opportunity was missed at the party’s autumn conference. As I wrote at the time in Tax: The missing ingredient from the Liberal Democrat conference agenda,
Conservatives by and large want to cut taxes and Liberal Democrats by and large want to increase taxes on wealth. There is therefore scope for a package which appeals to both wings of the coalition whilst also having whatever net fiscal effect that George Osborne and Danny Alexander agree is necessary.
That is just what happened last summer [2010], when raising capital gains tax – normally an anathema to most Conservatives – was packaged up with increasing the income tax allowance to produce a bundle that everyone was willing to support.
The idea of a similar repeat package is already finding favour in Conservative Party ranks, such as in the recent op-ed for The Guardian penned by ConservativeHome’s Tim Mongtomerie: “We should be increasing taxes on wealth and pollution in order to afford cuts in taxes on families and employers”.
However, amongst Liberal Democrats the question of what wealth taxes to support is deeply controversial. There is no simple consensus in the way there was over capital gains tax.
Matters have not changed since. Nick Clegg said in his ‘open society’ speech:
Eighteen months ago, speaking as a guest of Demos then too, I argued that the liberal approach to tax distinguishes between earned income, and unearned wealth. That’s why we’ve put up capital gains tax while cutting income tax for ordinary working families. And, of course, I’d like to go further in pursuit of this fiscal liberalism. Lower taxes on work and effort, a greater contribution from the wealthy: an open society approach to tax.
The political benefits of wealth taxes
As with many other liberals, Nick Clegg is strongly motivated by the issue of fair taxation of wealth. In addition, pursuing the issue provides three neat political benefits. First, it offers a clear distinction from at least part of the Conservative Party and one on which, if done right, the Liberal Democrats will be on the popular side of the divide. Second, it raises money and so provides more scope for favoured tax cuts, averted spending cuts or even spending increases.
Third, it side-steps the internal debate in the Liberal Democrats between those who are primarily concerned about social mobility and those who are primarily concerned about social inequality. Although pretty much everyone in the party agrees the two are linked, there is a big difference of emphasis between those who believe that increasing mobility is the priority, and will anyway lead to reduced inequality, and those who want inequality reduction up front. Wealth taxes appeal to all sides in that debate.
What wealth taxes?
But, as I said at the start, what form of wealth taxes?
Property tax? But mansion tax or more bands on council tax in that case? The council tax bands case is particularly popular with many party members in Vince Cable’s own backyard in south west London, but he has not been won over by it.
Inheritance tax? As George Osborne demonstrated in 2007, it’s a remarkably unpopular tax given the number of people it catches. So what about a tax not on the giver but on the recipient, in the form of a lifetime transfers tax? The IFS’s Mirrlees tax review saw a lot of merit in such a tax – but also doubted its practicality.
Or what about returning to capital gains tax, looking to further equalise taxes on income and wealth?
Or taxing pensioners more heavily, at least the very richest? David Laws has clearly been thinking along these lines.
Or what about taxes on land, that long-standing Liberal Party policy? The nineteenth century theories could be given a twenty-first century sheen with a pro-growth and pro-green emphasis, for a land tax which pushes people to get derelict urban sites back into use can be dressed up in the language of either or both. Not to mention the successful example of the tax on increased property values that was used to part-fund the extension to the Jubilee Line in London. Tax wealth, help the environment and improve the public infrastructure. That, at least is the case for. The case against makes mansion taxes seem quite uncontroversial by comparison.
However, whichever options you prefer from the wealth tax menu, there is one simple political timing calculation: the Liberal Democrat spring conference is the time to get it debated and passed. So if wealth taxes are your thing, get motion writing for the deadline is in early January.
* Mark Pack is Party President and is the editor of Liberal Democrat Newswire.
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35 Comments
LVT is the only way. It isn’t a wealth tax, of course, and shouldn’t be dsescribed a a wealth tax as it evokes the idea that the rich are being taxed because of envy. LVT is a tax on the free money given to those owning land by the hard work of others.
Failing that, 100% index linked CGT on all property (back dated four decades). That would sort the UK’s internal imbalances at a stroke and begin the process of making the UK competetive again through equalising opportunity.
Well said Mark! This is an issue the public cares about and can help to reduce the gap between rich and poor. After our experience with the AV referendum I am concerned about Nick Clegg’s focus on reforming the House of Lords being a another blind alley!
The MIrlees Review by the IFS has shown the way with a modern scientific look into our taxation system.
Increase council tax bands at the top end to make Council tax closer to a pure flat tax on house values at 0.7%. This cuts council tax on the poor and raises it on the rich, while also localising the revenue. It should also provide enough money to abolish stamp duty, which is an inefficient, badly designed tax that discourages housing sales to no obvious gain.
Introduce a Land Value Tax for business properties and replace business Rates and stamp duty for business properties. This will incentivise efficient use of land instead of the current tax that encourages sites to be left empty and over-taxes development intensive businesses often manufacturing.
Convert inheritance tax into a tax on receiving money, not giving it and make it applicable to all large capital transfers during life as well as at death. Also widen the base and cut the rate, standard tax principles. A £200,000 threshold and a 30% rate would make more sense. A £50,000 threshold and a 25% rate would make even more sense. An very high rate and threshold just encourages tax avoidance. The only people seriously affected have ample opportunity to avoid the tax. Reforming the tax in this manner would almost certainly raise more money from the wealthy by reducing the opportunity and incentive for avoidance.
Broaden the VAT base. Introduce VAT on food and other zero rated items and increase VAT on fuel and other reduced rate items. Wealth is only useful if you can use it to purchase things. The way you ensure wealth is properly taxed is by making sure rich people pay tax on all the things they buy. Reduced VAT on food, fuel, literature, etc, are vastly wasteful subsidies most of which goes to rich people who spend far more on these things than the poor. The poor should be compensated by adjusting income tax and the rich properly taxed at 20% on their vast consumption.
All these steps would give us a more economically efficient, simpler tax system that raises more money from the rich and less from the poor.
http://www.ifs.org.uk/mirrleesReview/design
“Or what about returning to capital gains tax” – we still have CGT!! There are sensible ways to reform it, but it is not a wealth tax, but a tax on gains.
Work I have been doing at CentreForum shows that pensioners typically pay between 50% and 100% less in taxes on incomes than people of working age on the same incomes. It is hard to see the justification for this.
Fully agree, Mark.
I think we need to be making the case for property and other tax reforms not just in Westminster – we might not achieve anything – but publicly, using our pulpit to make the case against council tax, for example, way ahead of 2015. And one thing missing from your article – and the public debate – is the connection between property taxes and real-estate bubbles / house prices which we’ve learned the hard way can cause immense damage via debt, land speculation and misdirection of investment and spending. I think any motion should mention that, and the trade-off between stable taxes and stable property prices.
Extra council tax bands would be good but I worry they would actually delay more substantial reform – i.e. completely replacing council tax (which has many other issues) with the Mirrlees suggestion Stephen mentioned, or (maybe longer-term) ‘pure’ LVT. Replacing business rates should be a serious aim for this Parliament.
On non-wage income, Mirrlees said: “Tax capital income and capital gains above the rate-of-return allowance [another of their proposals] at the same rate schedule as earned income (including employee and employer NICs), with reduced rates for dividends and capital gains on shares to reflect corporation tax already paid”.
And there’s definitely work to be done on the various pension tax reliefs.
I’m pretty confident there will be plenty of motions on tax, including wealth taxation: it is of course up to Conference Committee to decide what is debated.
The Party certainly does need a proper debate about our direction: there is general agreement that wealth taxation is disproportionately low compared to other forms of taxation; what there isn’t (as some of the remarks above indicate) is a consensus on how to most fairly tax wealth, and what the bargain is for the British public in terms of the overall tax burden.
Personally speaking, as a land taxer, now must be the time to commission proper research into how this tax might overcome some of the more egregious forms of unearned and untaxed income.
Tim: sorry if my wording wasn’t clear; what I meant was about returning to the issue of CGT – i.e. not to leave things as they were agreed in summer 2010 but look again at its level and allowances.
Stephen: There’s much in the Mirrlees Review (and hence your comment too) that I agree with, but on moving to a lifetimes transfer tax instead of inheritance tax, the Mirrlees Review does say it is very good in many theoretical aspects but holds back from really pushing it, saying that there are big practical problems that could sink the idea. I’m curious therefore as to what you reason is for agreeing with Mirrlees otherwise but also being so sure that the practical differences can be overcome? It’d be great if that is the case, so would be very interesting to hear what the evidence / proposals are on which you’ve based your view.
The rise in land (and hence property) prices is perhaps the major contributor the mess our country is in. The idea that owning land is a better investment than anything else has diverted funds away from investment in enterprise. People at the bottom of the housing ladder have been forced to borrow far more than is sensible because of fear that if they don’t they will forever be cut off from decent housing, those at the top (it is easy to forget that all money paid for housing comes out somewhere else) have made huge sums of money, almost untaxed, and come to think this can go on forever – but it can’t, it’s almost a pure Ponzi scheme, it must crack and what we have now is it doing just that. Another issue is so many good brains are sucked into the administration of all this, rather than into more productive work – this country is starved of decent scientists and engineers because the “finance” industry takes the best, often to do socially useless things. So here we are, living on credit because of this, those who have done well out of it have done so art the expense of those who cannot afford to pay it back – the real nightmare starts when interest rates go up. And this is not to take into account also the social disaster of housing being distributed in a way that almost guarantees the best of it goes to those in least need.
The solution has to be to pull back from all this, through forms of land tax and property tax. I agree it’s worth arguing over the detail, but also that it’s going to be VERY hard to sell it, because those who profit from it most have the loudest voices in society, those who would benefit from turning it back tend not even to realise the issue. I get so angry when I see these stupid messages “Stop the cuts” without any thought as to HOW. If those saying “Stop the cuts” were to be as vocal on calling for what is needed to do it – land and property taxes – the political case for it might eventually get through. Suppose that alongside every “Stop the cuts” banner there was a “tax the land” banner. Then we would be getting somewhere, and I might have some respect for all those protestors – I have NO respect for anyone who says “Stop the cuts” but has no answer to the question”OK, so how would you pay for it?”. Vague “tax the rich” without the details is not enough, and without the details it’s easy for those who would be affected by any realistic “wealth” taxation to suppose “rich” doesn’t mean them.
Well, here we LibDems are, derided by the “left”, yet we are the ones seriously thinking through realistic ways out of the mess this country is in, while they have nothing productive to say. I know I’ve been nasty to Nick Clegg, but if he can take this further I might feel better about him – at least on this issue I can say “I agree with Nick”.
A land tax would need to be balanced by a loan or deferment scheme to counter the argument about the little old lady with no income living in a house in a place where land values have shot up since she moved there decades ago. The loan would need to be secured on her property and paid from her estate after her death, the guarantee must be there that no-one gets thrown out of their home through this. But then we get the sentimental argument against inheritance taxes – I have always thought inheritance taxes the most benign, but have always found when I argue the case for them I’m almost alone. I suspect a land tax paid for in many cases from the estate on death would be treated in a similar way. All this is why we need those who aren’t directly seeking votes to prepare the grounds for it – just as the grounds were prepared for the extreme right-wing economics of the Conservative Party by think tanks “thinking the impossible”.
The sentimental argument is that such a scheme means the little old lady no longer has something to hand over to her children. Well, it seems to me that her children have a vested interest in helping pay the taxes if they need the property. And if they don’t? Well, why is it we seem to think in this country it’s fair for someone to get a property worth hundreds of thousands they don’t need without paying tax on it, but those who do need it but have to get a mortgage to pay for it must pay for it out of taxed income and work long hard and damaging hours to pay for it? Why do we think it best to have a system where families with young children are squeezed into misery because of high house prices, while those who no longer have a need for family housing should get more of it? Are we unable to see the links between this and juvenile delinquency? Are we unable to see the concreting over of our land in a vain attempt to “meet need” will never stop all the while holding into housing you don’t really need pays off better than any other investment?
The trouble is that if we start new taxes at low levels and high thresholds they will inevtitably get the rates put up and the thresholds down. Instead of replacing some taxes with wealth taxes we will simply have added yet further to the tax burden.
Totally needs to be done. We say the 40 and 50 percent income tax rates are a tax on the “rich”, but The Sunday Times rich list is based on wealth not income. Rich meaning high-income not high-wealth is a misdefinition which is massively disadvantageous to young people working 5 days a week and still paying off mortgages and raising families compared to old people living in their paid-off houses who don’t need to work full-time but are often richer on the normal definition of “rich”.
Matthew — you’re not quite alone! I’ve always thought inheritance taxes the fairest of all: taxing people who by definition have no need for the money any more… But given the traction gained by the Express’s ridiculous campaign against “death taxes” a couple of years ago, I have little hope that we’ll ever be in the majority on this one. (Not that that’s a reason not to try.)
“Stephen W”
“Convert inheritance tax into a tax on receiving money, not giving it and make it applicable to all large capital transfers during life as well as at death. Also widen the base and cut the rate, standard tax principles. A £200,000 threshold and a 30% rate would make more sense. A £50,000 threshold and a 25% rate would make even more sense. An very high rate and threshold just encourages tax avoidance. The only people seriously affected have ample opportunity to avoid the tax. Reforming the tax in this manner would almost certainly raise more money from the wealthy by reducing the opportunity and incentive for avoidance.”
It is noteworthy that, apart from Mark Pack, you and Matthew Huntbach are the only contributors to mention inheritance tax. May I draw a distinction between two different forms of capitalism?
I maintain that we live under a malign and out dated political ideology. Dynastic capitalism, a relic of feudalism, takes as given that some will inherit billions while others inherit nothing. How, then, can we be “all in this together”? How, then, can there be equality of opportunity? The State positively redistributes earned and unearned income through the income Welfare State. Why does it not positively redistribute unearned inherited capital through an asset welfare state which would then reduce in each new generation the need for and cost of the income Welfare State?
Because of dynastic capitalist assumptions, UK Inheritance Tax is a fraud. It is not a tax on inheriting: it is a 40 per cent Capital Donor Tax, but with scandalously unlimited exemptions for the rich, on the luxury expenditure of giving and bequeathing capital. Give it its proper name. Abolish all exemptions except between partners, spouses and cohabiting siblings. Reduce its rate to a recording 10 per cent, less than the rate of VAT on ordinary expenditure. Maintain the present 40 per cent for giving to non-UK tax payers. Make this Capital Donor Tax deductible from a new true UK tax on inheriting – a cumulative Lifetime Unearned Capital Tax – at progressive rates from 10 per cent upwards.
Two taxes in tandem are less easy to avoid than one tax on its own. Use the proceeds to finance a significant redistribution of inherited wealth in each new generation. Introduce UK Universal Inheritance for every UK-born UK citizen at 25. Introduce it gradually, at £2,000 in the first year up to £10,000 in the fifth year and hopefully more thereafter, ideally at least up to three years’ university tuition fees. These amounts relate to the roughly £100,000 average wealth of every adult and child in the UK. The amounts would themselves be subject to the higher rates of Lifetime Unearned Capital Tax payable by recipients of larger lifetime fortunes.
UK Universal Inheritance would require all to have a bank account at 25. It would reduce alienation, financial and social exclusion and young adult poverty. It would increase educational opportunity, entrepreneurial activity, home ownership, and other expenditures as desired, with the 25 year old being the judge of what is and what is not wasted expenditure for her or him. Now would be a good time to start transferring spending power from the inherited undeserving rich to both the deserving and the undeserving poor.
It is time for universal inheritance capitalism to bring dynastic capitalism to an end, before democratic capitalism itself comes under threat. Which political party will be the first to follow the Liberal Party in adopting this as party policy?
It is a pity that the Social Democrats forced the Liberals in the Liberal Democrats to give up the ”Liberty, Property and Security for all” traditional preamble to the Liberal Party Constitution. Otherwise the Liberal Democrats might more easily have been persuaded to be the first to follow the Liberal Party. Being an EU-sceptic Liberal, I have been trying to persuade UKIP, from outside the party, but they are, of course, a collection of hard nuts to crack! Their current policy is to abolish Inheritance Tax altogether, which is very off-putting! But UKIP for UK Universal Inheritance has a good populist ring to it! And to introduce UK Universal Inheritance, we would probably have to leave the EU anyway, since it disgracefully discriminates, does it not, against 25 year old UK citizens born in other EU countries?!
I also thought I might get somewhere with Oliver Letwin as Minister of State for Policy, but not as yet with success, although he has politely commended my persistence! I can just stretch my imagination to see the Conservative Party beating both the Liberal Democrats and Labour to it, which would be ironic indeed! But after all, Disraeli adopted a significant step towards Universal Suffrage in the interest of power in the 19th century, so why should a great Conservative leader of the 21st Century not adopt Universal Inheritance, with parameters of his (or her?) choosing, to maintain power in the future? Maggie Thatcher widened the private ownership of wealth, did she not, by selling council houses and privatising utilities. What next? There is no alternative to optimism!
@Mark Pack
My apologies. I was confusing. I actually agree with Mirlees that a life-time transfer tax is almost impossible to achieve. I was suggesting instead a capital transfer tax with an annual allowance, whether high of £200,000 o lower of £50,000 or so. By during life as well as in death I meant including taxing transfers taken while the person is alive as well as on thier death, As opposed to one whose rate and basis is assessed over the basis of the recipients’ entire life.
“Stephen W”
The 1973 Institute of Financial Studies “An Accessions Tax” led the way, but I always thought that the transition from a tax on giving to a tax on receiving would open up horrific loopholes. Hence my proposal of a modest flat tax on all giving and bequeathing deductible from a progressive tax on receiving. This would I believe also help to deal with trusts. Where there is a will, there is a way.
“Stephen W”
And the two taxes in tandem enable the cumulative lifetime receipts to be recorded.
“Stephen W”
Sorry! Institute of Fiscal Studies, of course – not Institute of Financial Studies!
Obviously I hope we will get some good policies on wealth taxes and I am pleased to see this article and some of the suggestions.
But what frustrates me is that for all the considerable time it is taking to sort this out, in the meantime George Osborne introduces his autumn statement which has targeted people who claim tax credits as a means for raising revenue for the exchequer. According to the Independent and the Resolution Foundation this has significantly undone the policy of raising tax credits and has left people on low incomes significantly worse off.
http://www.independent.co.uk/news/uk/politics/britains-poorest-hit-by-25bn-stealth-tax-6281832.html
The government has no difficulty in introducing regressive policies. There is no debate, it just gets on with it.
@Diane Clouston
“I always thought that the transition from a tax on giving to a tax on receiving would open up horrific loopholes”
Why? What loopholes? Every transfer must involve one giving and one receiving. As long as you tax one of the two, every transaction will be taxed. A straight transfer from a tax on donations to a tax on receipt on a given date should not cause any loophole.
It would also make vastly more sense. It would encourage donors to spread wealth, and it conform with the principle of every other tax we have. You don’t pay income tax on the basis of how much your boss makes.
If you’re going back to land taxes, you have to make sure they are kept proportionate ie commensurate with the existing council tax bands. Otherwise you will just get avoidance, leading to property splitting etc.
And why not use tax to tackle high pay? A ban on public sector salaries higher than the Prime Minister (almost £150k). And a rebuttable presumption that salary packages including bonuses (whether to employees or consultants) over £150k are NOT wholly, necessarily and exclusively for the purposes of an employer’s business. In other words the excess over £150k is not normally tax-deductible for businesses.
“Stephen W”
How easy it is to misunderstand one another!
If you move from a single tax on giving to a single tax on cumulative lifetime receiving, without keeping the tax on giving in tandem with it, I think there would be loopholes in relation to the exemptions and maybe the cumulative totals. At least that is what I remember thinking at the time.
Anyway, if you read what I have said you will see that I am very much in favour of – and have been since 1973! – a progressive cumulative Lifetime Unearned Capital Tax for all the reasons you give. You might like to refer to an article I wrote in the Liberal Party magazine New Outlook in 1976 entitled “Inheritance for All”.
I am also in favour of retaining a flat rate 10 per cent RECORDING Capital Donor Tax (“Inheritance” Tax renamed and reduced from 40 per cent to 10 per cent with no exemptions except between partners, spouses and cohabiting siblings), in tandem with AND DEDUCTIBLE FROM the cumulative Lifetime Unearned Capital Tax at progressive rates starting at the same 10 per cent.
In that way, those who receive only modest lifetime totals will pay no tax other than the 10 per cent Capital Donor Tax already paid by donors on the luxury expenditure of giving and bequeathing capital. Less than VAT on ordinary expenditure!
And two taxes in tandem are less easy to evade or avoid than one on its own!
Incidentally, my name is Dane. Diane is feminine, which I am not!
Dane, I know you are anti EU, but now is the time to come home to the Liberal Democrats and push for a Universal Inheritance policy – the Morrishite Liberal Party had less than twenty people at its “assembly” it’s going nowhere fast.
“Dilke”
Thank you very much. It is a tempting idea.
I would be inclined to call the continuing EU-sceptic Liberal Party the Radfordite rather than Morrishite Liberal Party, if I had to label it otherwise, but you not far out on the number. It is a pity there were so few because it was a very well, professionally and traditionally organised Assembly. The number was taken over 20 by an influx of a few new relatively EU-phile members, so a clearly EU withdrawalist resolution was lost to an EU-sceptic fudge, to my disappointment.
I am not anti-EU. I just do not want the UK to be a full member of it or, of course, of the Euro. I agree with UKIP on that, and am trying to persuade them from the outside to adopt UK Universal Inheritance.
I would not like to give up my membership of the Liberal Party, but I would like to continue to argue for UK Universal Inheritance to Liberal Democrats, perhaps as an observer at an Assembly, and also to attend as an observer meetings discussing clarification of Liberal Democrat attitudes to the changing European Union. I wonder how many Liberal Democrats would like the UK to be outside a United States of Europe.
Matthew, I think you are being inordinately unfair to the thousands opposing cuts. Yes, of course, if you are a professional, or even an amateur poitician, you must have viable alternative ways of dealing with any situation, but tax IS a complex issue, and it is reasonable for ordinary people in society to protest against things that are clearly wrong in their world without having a detailed critique in mind. For me personally I have always believed the UK deficit situation to have been exaggerated for ideologicalreasons, so don’t think the level of economic changes were justified anyway. And I agree with the previous poster that there seems little wrong with emphasising taxing higher incomes. And yes, “unearned” wealth on gains should be taxed at similar rates to income – anything else is unfair and inefficient.
“And yes, “unearned” wealth on gains should be taxed at similar rates to income – anything else is unfair and inefficient.”
And should this apply to primary dwellings?
“And should this apply to primary dwellings?”
But of course it should. It’s tempting to think that politically it would never be possible to abolish the exemption on CGT for primary dwellings; but that’s what people used to say in the 1980s about mortgage interest tax relief. It’ll never be popular, I dare say; but it could be done.
Unearned wealth should, ultimately, be taxed at 100%. Anything less amounts to private theft.
Earned wealth, conversely. should be 100% free from tax. Anything more is theft by the state.
Andrew D – maybe tongue in cheek, but still sounds quite an extreme statement!
@Dane.
My apologies. I can’t believe I repeatedly misread your name over all those comments. I must be going even blinder than I thought.
In principle I agree with a life-time, progressively rated tax on receipts of capital. But like Mark and the IFS I think in practice it would be too complicated and difficult to administrate. It would suffer from numerous loopholes and difficulties as you suggest, and quite probably would require a 2nd tax, which would over-all make the new system considerably more complicated than the old.
Due to this serious difficulty in administration I don’t think such a system would be feasible. A simple capital transfer tax, assessed on the recipient on an annual basis with a low threshold (of say £50,000 a year) and a lower rate of say 25% would be a substantial improvement on the current system. It would raise more money from the rich by reducing both the chance and incentive for avoidance. That would fund tax cuts for poorer people.
Another alternative is leaving the tax structural the same, cutting the reliefs, cutting the threshold to £200,000 and the rate to 30%, again reducing the chances and incentives for avoidance. Also lengthen the period applicable from 7 years to a longer period, say 14 years, to make a wider range of capital gifts taxable.
@Tabman & Malcolm.
Yes, CGT should in principle be charged at the same rate as income tax. But only if we take into account the role of inflation, i.e. people should not be charged tax on the effect of inflation. This is not a problem with income tax, but it would be with CGT. Hence the current rates are 18% and 28%, not 20% and 40%. These are crude ways of adjusting to inflation.
The IFS and the mirrlees review suggested a system whereby people received an allowance for the cost of capital each year, a deductible allowance each equivilent to the 10 year interest rate on government bonds. CGT would then be charged on any gain above the compound allowance for cost of capital at the full income tax rate, 20%, 40% or 50%. It does make a more complex system than the current one but if we want to raise rates above the current 28% it is crucial to avoid double taxation on capital growth.
“Stephen W”.
No problem, thank you.
I’m glad you agree in principle on a cumulative Lifetime Capital Receipts Tax. However, I believe it is practical, providing there is a second tax – a modest recording flat tax on giving and leaving capital. I would set the Inheritance Tax – renamed Capital Donor Tax- at 10 per cent with minimal exemptions similar to the current £3,000 a year and £250 to any one not included in that. In fact probably less than that in view of the fact that it is a 10 per cent tax rather than a 40 per cent tax to which the exemptions apply. If the progressive tax on receiving starts at the same 10 per cent, modest lifetime fortunes received will attract no more tax than the 10 per cent already paid by donors. There would be none of the present exemptions for lifetime gifts and agricultural, business and shareholding assets. The idea is to spead the inheritance of wealth more widely, not to continue dynasties.
Two taxes may be more complicated than one at first sight, but cross referencing by Inland Revenue between the two will prevent avoidance. It is difficult to tax two separate things logically with one tax. A capital transfer is a combination of, on the one hand, a luxury expenditure by a donor (taxed at 10 per cent – less than VAT on ordinary espenditure) and, on the other hand, part of a cumulative lifetime total of unearned inherited wealth received by the beneficiary (taxed at progressive rates).
What we are talking about is bringing dynastic capitalism to an end, by positively redistributing the inheritance of wealth in each new generation. No small matter. Your proposal is to tax giving of capital in order to reduce income tax for the poor. Selling the silver to feed the poor. Universal Inheritance uses proceeds of tax on capital to spread capital more widely in private ownership in each succeeding generation. A different matter entirely.
I would just like to point out as a Londoner that unless they are thought out very carefully there is massive potential for regional unfairness in any such proposals, since in many areas of London a small terraced house can take you well into IHT territory. Any such wealth taxes are likely to impinge massively on the capital, even on those with comparatively modest lifestyles. Given that the cost of living means that many of us already fall into the higher rate tax band even though we are in no way rich in London terms, due to the much higher cost of living, it would compound an existing regional unfairness in the system.
A second point: presentation and clarity are key. The Evening Standard is even now printing deliberate misinformation about the Mansion Tax, just a week or two ago describing it as a tax on properties over £1m, rather than the real figure of £2m. In London, this equates to a four bedroom terraced house in many areas and would mean electoral suicide in many of our London constituencies. Any tax should be simple, carefully thought out and easy to present without any room for misinformation on the part of our opponents. In the case of AV, failure to follow these rules proved a fatal weakness.
“In London, this equates to a four bedroom terraced house in many areas”
For clarity:
“In London, £1m equates to a four bedroom terraced house in many areas”
“R C”
When people die and pass wealth on to the next generation, there is no reason why they should not be taxed at 10 per cent on the value of their house as part of their estate, and then that their heirs should not be taxed at progressive rates from 10 per cent up to 40 per cent on cumulative lifetime totals of the unearned wealth received, with the former tax deductible from the latter.
Then use the proceeds to give every UK-born UK citizen a minimum Universal Inheritance of £10,000, introduced gradually from a low base.
We have got to reduce inequality of unearned wealth in each new generation, in order to improve the starting position from which social mobility commences..