CGT equalisation with income tax makes sense to me, it's one of the few taxes I think this government will be looking at that isn't the red meat sort and actually makes sound economic sense too rather than the economic equivalent of the Rwanda policy.
It would simplify tax to some extent I guess. You are then saying (I guess) I don’t care how you made your money (income) I’m taxing you the same rate as if you are salaried.
It’s equitable.
Some will argue it discourages investment I guess.
I have a £100k investment in a business. I would be happy to pay income tax levels on that when I cash it in provided that it becomes deductible on my income tax if it collapses rather than within CGT rules.
Not sure I follow your definition of deductible in your scenario.
Would it not be (from HMRC) perspective if the business ‘failed’ then when you exited there is no income / proceeds on which to be taxed?
If you are suggesting your initial investment might in that scenario might give you some credit to offset any other income tax I’m less sure they would go with that but who knows.
I think the perception they are battling is that the ‘rich’ can be seen to pay tax at a lower rate than the average ‘Joe’ when most of their income doesn’t come from salaried pay.
Sorry, definitely worded it poorly, my fault.
What I'm saying is that currently if I make an investment of £100k and it fails (and by that I mean I lose £100k because it has collapsed), I effectively get £100k CGT relief, that's useless to me. What I would want if we are equalising treatment is for that £100k loss to go against my declarable income tax. Ie if I earn £150k PAYE, my taxable income is only £50k that year.
To me that seems fair and would keep me wanting to make investments in small businesses.
After all, if we are leveling the playing field, we need to do it properly....
Wouldn't make sense. You're mixing to differents elements of tax....capital gains & income.
You can already offset losses against gains.....with those losses being carried over to future years if you have no gains to offset against
In your scenario people would be investing in all sorts of loss making businesses just to reduce or nullify income tax. The country would go to pieces with little tax being taken from higher earners.
Except by aligning rates you are effectively making capital gains income.
not sure your last part holds water. So I invest £100m and make £25m, but rather than pay 45% tax on the £25m I’ll invest money elsewhere and lose £25m so I don’t have to pay tax …… net effect I’ve made nothing rather than nearly £14m as I didn’t want to give the tax man £11m.
CGT equalisation with income tax makes sense to me, it's one of the few taxes I think this government will be looking at that isn't the red meat sort and actually makes sound economic sense too rather than the economic equivalent of the Rwanda policy.
It would simplify tax to some extent I guess. You are then saying (I guess) I don’t care how you made your money (income) I’m taxing you the same rate as if you are salaried.
It’s equitable.
Some will argue it discourages investment I guess.
I have a £100k investment in a business. I would be happy to pay income tax levels on that when I cash it in provided that it becomes deductible on my income tax if it collapses rather than within CGT rules.
Not sure I follow your definition of deductible in your scenario.
Would it not be (from HMRC) perspective if the business ‘failed’ then when you exited there is no income / proceeds on which to be taxed?
If you are suggesting your initial investment might in that scenario might give you some credit to offset any other income tax I’m less sure they would go with that but who knows.
I think the perception they are battling is that the ‘rich’ can be seen to pay tax at a lower rate than the average ‘Joe’ when most of their income doesn’t come from salaried pay.
Sorry, definitely worded it poorly, my fault.
What I'm saying is that currently if I make an investment of £100k and it fails (and by that I mean I lose £100k because it has collapsed), I effectively get £100k CGT relief, that's useless to me. What I would want if we are equalising treatment is for that £100k loss to go against my declarable income tax. Ie if I earn £150k PAYE, my taxable income is only £50k that year.
To me that seems fair and would keep me wanting to make investments in small businesses.
After all, if we are leveling the playing field, we need to do it properly....
Wouldn't make sense. You're mixing to differents elements of tax....capital gains & income.
You can already offset losses against gains.....with those losses being carried over to future years if you have no gains to offset against
In your scenario people would be investing in all sorts of loss making businesses just to reduce or nullify income tax. The country would go to pieces with little tax being taken from higher earners.
But you'd lose still lose the "net" amount... Ie of that £100k loss, you would still lose more than you gain in most cases.
Your argument around people investing in loss making businesses to reduce income tax must hold with CGT too in that case. People will be investing in loss making businesses to reduce or nullify CGT...
It all stems from a real life scenario for me, where investing in a business we had to decide if it's a 3 year loan (interest would come under income tax, if the company went under, that principal would be deductible from earnings) for 3 years at 13%, or we do an advanced subscription agreement which converts to shares at a 39% discount when a sale happens. Any gains from that are taxed at CGT levels, but if it all implodes all I get is a CGT credit, I don't have anything else in my life that's going to attract CGT.
Enterprise investment schemes already have what I have stated above. If I invest through an EIS scheme there's 30% income tax relief on the way in, but if it implodes losses can be offset against income. Seed Enterprise investment schemes is 50% on the way in I believe, so there is precedence for this.
Yes, an EIS will give 30% tax relief.....not 100% !
CGT equalisation with income tax makes sense to me, it's one of the few taxes I think this government will be looking at that isn't the red meat sort and actually makes sound economic sense too rather than the economic equivalent of the Rwanda policy.
It would simplify tax to some extent I guess. You are then saying (I guess) I don’t care how you made your money (income) I’m taxing you the same rate as if you are salaried.
It’s equitable.
Some will argue it discourages investment I guess.
I have a £100k investment in a business. I would be happy to pay income tax levels on that when I cash it in provided that it becomes deductible on my income tax if it collapses rather than within CGT rules.
Not sure I follow your definition of deductible in your scenario.
Would it not be (from HMRC) perspective if the business ‘failed’ then when you exited there is no income / proceeds on which to be taxed?
If you are suggesting your initial investment might in that scenario might give you some credit to offset any other income tax I’m less sure they would go with that but who knows.
I think the perception they are battling is that the ‘rich’ can be seen to pay tax at a lower rate than the average ‘Joe’ when most of their income doesn’t come from salaried pay.
Sorry, definitely worded it poorly, my fault.
What I'm saying is that currently if I make an investment of £100k and it fails (and by that I mean I lose £100k because it has collapsed), I effectively get £100k CGT relief, that's useless to me. What I would want if we are equalising treatment is for that £100k loss to go against my declarable income tax. Ie if I earn £150k PAYE, my taxable income is only £50k that year.
To me that seems fair and would keep me wanting to make investments in small businesses.
After all, if we are leveling the playing field, we need to do it properly....
Wouldn't make sense. You're mixing to differents elements of tax....capital gains & income.
You can already offset losses against gains.....with those losses being carried over to future years if you have no gains to offset against
In your scenario people would be investing in all sorts of loss making businesses just to reduce or nullify income tax. The country would go to pieces with little tax being taken from higher earners.
Except by aligning rates you are effectively making capital gains income.
not sure your last part holds water. So I invest £100m and make £25m, but rather than pay 45% tax on the £25m I’ll invest money elsewhere and lose £25m so I don’t have to pay tax …… net effect I’ve made nothing rather than nearly £14m as I didn’t want to give the tax man £11m.
Agreed - all income is income is income!
Income
PAYE
Self Employed Income via Self-Assessment
Pensions
Dividends
Interest
Etc...
Then CGT - sale of certain assets*, shares etc - taxed on the capital gain in the year realised, tax offset relief on any capital loss in the year realised. Perhaps no carry over.
*this would not include any assets that naturally depreciate e.g. most cars! Sale of main residence would as now be excluded. And growth in investments wrapped up in pension savings (DC schemes and Sipps) would as now be excluded from CGT.
With up to 45% relief on CGT losses it would for example encourage investment in start-ups and encourage non-cash investment savings.
CGT equalisation with income tax makes sense to me, it's one of the few taxes I think this government will be looking at that isn't the red meat sort and actually makes sound economic sense too rather than the economic equivalent of the Rwanda policy.
It would simplify tax to some extent I guess. You are then saying (I guess) I don’t care how you made your money (income) I’m taxing you the same rate as if you are salaried.
It’s equitable.
Some will argue it discourages investment I guess.
I have a £100k investment in a business. I would be happy to pay income tax levels on that when I cash it in provided that it becomes deductible on my income tax if it collapses rather than within CGT rules.
Not sure I follow your definition of deductible in your scenario.
Would it not be (from HMRC) perspective if the business ‘failed’ then when you exited there is no income / proceeds on which to be taxed?
If you are suggesting your initial investment might in that scenario might give you some credit to offset any other income tax I’m less sure they would go with that but who knows.
I think the perception they are battling is that the ‘rich’ can be seen to pay tax at a lower rate than the average ‘Joe’ when most of their income doesn’t come from salaried pay.
Sorry, definitely worded it poorly, my fault.
What I'm saying is that currently if I make an investment of £100k and it fails (and by that I mean I lose £100k because it has collapsed), I effectively get £100k CGT relief, that's useless to me. What I would want if we are equalising treatment is for that £100k loss to go against my declarable income tax. Ie if I earn £150k PAYE, my taxable income is only £50k that year.
To me that seems fair and would keep me wanting to make investments in small businesses.
After all, if we are leveling the playing field, we need to do it properly....
Wouldn't make sense. You're mixing to differents elements of tax....capital gains & income.
You can already offset losses against gains.....with those losses being carried over to future years if you have no gains to offset against
In your scenario people would be investing in all sorts of loss making businesses just to reduce or nullify income tax. The country would go to pieces with little tax being taken from higher earners.
But you'd lose still lose the "net" amount... Ie of that £100k loss, you would still lose more than you gain in most cases.
Your argument around people investing in loss making businesses to reduce income tax must hold with CGT too in that case. People will be investing in loss making businesses to reduce or nullify CGT...
It all stems from a real life scenario for me, where investing in a business we had to decide if it's a 3 year loan (interest would come under income tax, if the company went under, that principal would be deductible from earnings) for 3 years at 13%, or we do an advanced subscription agreement which converts to shares at a 39% discount when a sale happens. Any gains from that are taxed at CGT levels, but if it all implodes all I get is a CGT credit, I don't have anything else in my life that's going to attract CGT.
Enterprise investment schemes already have what I have stated above. If I invest through an EIS scheme there's 30% income tax relief on the way in, but if it implodes losses can be offset against income. Seed Enterprise investment schemes is 50% on the way in I believe, so there is precedence for this.
Yes, an EIS will give 30% tax relief.....not 100% !
If it collapses, the whole amount is deductible for income tax calcs... If it succeeds, you still get the 30% relief on the way in. But if it fails... 100%... Is deductible.
If anything I'm more convinced now, CGT and income tax should merge into one. Basically scrap CGT and tax any gains/losses as income.
Just in case there is any confusion to what I'm saying, I'm saying if I lose £100k, not that I should get £100k of tax back, but that my taxable income on which the tax I pay is calculated should drop by £100k.
Comments
not sure your last part holds water. So I invest £100m and make £25m, but rather than pay 45% tax on the £25m I’ll invest money elsewhere and lose £25m so I don’t have to pay tax …… net effect I’ve made nothing rather than nearly £14m as I didn’t want to give the tax man £11m.
If anything I'm more convinced now, CGT and income tax should merge into one. Basically scrap CGT and tax any gains/losses as income.
Just in case there is any confusion to what I'm saying, I'm saying if I lose £100k, not that I should get £100k of tax back, but that my taxable income on which the tax I pay is calculated should drop by £100k.