thecredo

Christie Malry on CGT

In Taxation on May 28, 2010 at 19:58

Good post from FCAblog – run by an accountant, so you’d think it would be boring, but actually it’s quite good.

Here, Christie Malry (aka FCAblog-ger), outlines some of the pitfalls of a Capital Gains Tax increase:

Inflation makes capital gains unfair by generating increases in value that are the result solely of the ravages of inflation, not a genuine gain. The problem is easy to demonstrate. Imagine you’re a person aged 20 with £10,000. You decide you want to squirrel this away for your retirement. You buy shares worth £10,000 with the money and the central bank manages to keep inflation constant at 2%. 50 years later you cash in your investment (imagine for the purposes of this exercise that the individual has already used up their annual exempt amount on other disposals). Good news – the shares have kept up with inflation and are now worth £26,916! Bad news – the government deems that this gain of £16,916 is taxable and sends you a tax bill of £6,766. Even worse news – the £20,149 you’ve got left is worth only 75% of your original money. You’ve lost 25% of your original investment just because the government taxed your inflationary gains. Seeing that inflation is a direct result of government policy, this is very unfair.

Well worth reading the rest of the article for the rest of the story – and some possible solutions – which you can do over on Christie’s site.

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