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Occam’s Capital Gains

August 11, 2020

The lovely people at the Office of Tax Simplification are looking at the administration of Capital Gains Tax. There was a scoping document here which included commitments to set up a consultative committee and to liaise closely with the Admin Burden Reduction Board. I hope they also plan to talk to some civilians? There is a Call for Evidence and a two part online survey but it’s not exactly the kind of stuff that makes the red tops. OTS asked for “high level” comments by, well, 10th August, but the call for evidence is open until October and they said on Twitter that they were open to slightly late “high level” comments too.

So, what are they thinking? The full call for evidence is long and tedious detailed, as – you might say – is the CGT tax regime itself.

My personal “high level” suggestion would be to do away with the lot of it at a stroke and combine income tax and capital gains tax. Why should there be different rules for capital and revenue, different allowances and reliefs? Why not tax all income and gains at the same rate on the same return and with the one single tax free allowance?

If you make a profit buying a teapot in a charity shop and selling it on ebay you need not report or pay tax on the profit unless your year’s ebay profits are over £1000 – HMRC wants to keep small traders (particularly if they are liable to make irritating losses) out of the self assessment system and out of their hair. Why not have a unitary system: if you sell your grandmother’s teapot – inherited, so not a trading item – how about you don’t have to pay any tax on that unless you sell it for more than £1000?

Except, oh look, there’s already a CGT “chattels exemption” if you sell tangible objects like teapots. You don’t have to pay CGT on them unless you sell them for more than £6000. Why a thousand for IT and six for CGT? Pick a number and stick with it, I say.

How about this? One tax-free allowance, and one rate of tax, applying to all profits and gains whether capital, revenue or wobbling somewhere in between? One de minimis amount, so everyone knows you don’t have to bother with the teapot unless you sell it for £6k and you don’t have to bother with your profits from internet selling of the china you bought at the car boot sale till you hit £6k either.

Shares and such like? All gains taxable, no losses allowable, no admin because it’s deducted at source (like bank interest used to be)… and what about family farms and company gains and housing…

The problem with tax simplification is if you start by asking tax specialists about it you start from a place of complexity, exception and exemption. Start with some citizen juries and run some scenarios past them and see how they feel about the principle: then ask the tax professionals to make it work.

 

 

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