Evaluation of Capital Gains Tax Proposals for 2008/09 in UK

Résumé du document

Capital Gains tax (CGT) has been much reformed in history because it is a very complex tax. CGT is "a tax on the increase in the value of an asset between its acquisition and its disposal" (IFS). Chancellor Alistair Darling introduced his Pre-Budget Reporting on 9 October 2007 which showed many changes notably in tax system. The objective of the government is to create "a strong economy and a fair society". In this report, changes in capital gains tax from 6 April 2008 created large negative reactions by public and lobbies. The amended report published in January 2008 was better but did not convince entirely. The following essay will evaluate the changes to Capital Gains Tax by explaining Capital Gains Tax and its new changes in UK, by discussing the impacts through tax theories and then by discussing the reactions by lobby groups.

Extraits

[...] Concerning equity, this new system also seems to be fairer concerning private equity because this system involves a higher tax rate for investors which buy and sell unlisted companies to gain money against 10%). Nevertheless, the notion of equity could be taken into question through these new rules. Indeed, the will to create a simpler system with fixed 18% rate could involve unfairness. There are often losers and winners in government decisions. In this case, in balance, losers should be employee share schemes, long term investors and insurance bonds. Winners should be property investors and equity investors. [...]

[...] Thus, this tax is difficult to manage and changes of its rules involve so controversies. Changes in this tax influence behaviour of taxpayers, individuals and firms, and so influence economy. In his Pre-Budget Report on 9 October 2007, The Chancellor Alistair Darling proposes to delete the taper relief and the indexation allowance of the current system created by Gordon Brown in April 1998 and to introduce a fixed 18% rate. The fixed rate or flat rate is opposed with the progressive tax of the current system ( and 40%). [...]

[...] Evaluation of Capital Gains Tax Proposals for 2008/09 in UK Capital Gains tax (CGT) has been much reformed in the history because it is a very complex tax. CGT is tax on the increase in the value of an asset between its acquisition and its disposal” (IFS). Chancellor Alistair Darling introduced his Pre-Budget Reporting on 9 October 2007 which showed many changes notably in tax system. The objective of the government is to create strong economy and a fair society”. [...]

[...] These elements are lack of lack of economic incentive. According to Richard Lambert, CBI's director general, “these revised measures will do nothing to help the real business powerhouses of this country”. Moreover, according to David Frost, BCC's director general, government should not have changed Capital Gains Tax system that was working well and helped to foster an entrepreneurial spirit in the Indeed, this new system without taper relief is not incentive to invest in long term and to take risks contrary to the current system. [...]

[...] Moreover, a proposal of flat rate and of abolition of the taper relief seems strange for a labour party member. Indeed, this new system stimulates speculation, less encourage long term investment, increase inequality between rich investors (current higher tax payers) and poor investors (current lower tax payers). Moreover, is this system more “sustainable” as claimed by government? Indeed, less flexibility means non response to changes in environment. Capital Gain Tax is a subject of discussion in many countries and it is difficult to find a compromise between performance and efficiency of this tax and fairness. [...]