Taxing times for the UK taxpayerPosted on: 01 June 2010 by Mark O'haire
As we move closer to the budget, the political noise becomes louder and louder, but few can get away from the points in relation to capital gains tax we covered last week.
Vince Cable is now telling us that wealth should be taxed the same way as income, commenting that “it is quite wrong and an open invitation to tax avoidance to have people taxed at 40-50% on their income but only taxed at 18% on capital gains” and “for reasons of fairness and practicality” he wants to overhaul the entire capital gains scheme.
And so I typed in 'daft idea' to Google to see if it could come up with anything more stupid, but unfortunately, at the top of the list (try it) is an entry slamming David Cameron in relation to his proposals for when a prime minister should be changed. Hey ho, you can’t get away from it.
Mr Clegg should be mindful of the fact most people have paid tax on their income (at 20-40%) with employers' and employees' contributions for national insurance having already been taken out at close to 23%. They had decided to invest their money to protect the security of their families, so they proceeded from their house (which they pay council tax on) along a road, over a toll bridge in a car (which they are taxed on to buy and pay extortionate road tax on just to drive) to see an independent financial adviser. They are stopped by a policeman who they pay for via tax, who asks to see their insurance which they paid insurance premium tax on, and they then proceed to fill their car with petrol which has 67% tax. They park their car in the space that used to be free and pay a parking tax and trundle in to see their adviser.
Their adviser looks at their tax position, sees the capital they have is being taxed in the building society and recommends the most appropriate tax solution. They take the appropriate risk and invest. Their adviser charges a fee which has Vat added to it.
Clearly a stressful day, they pop in for a beer which is battered with tax and consider taking up smoking to deal with the stress but realise it would kill them twice.
They pop back to see their family for a tax free hug and kiss and sit down to relax in front of their taxed TV. They sleep tax free.
The years go by and their investments in property have been taxed each year and their liquid investments have been taxed as they grow apart from their ISAs and offshore bonds.
And now, somehow, Vince reckons in the “interests of fairness and practicality” they should pay 40-50% when they sell it. Get a grip of your life.
To what problem is that a solution?
All this will do is move capital offshore and into liquid investments that may or may not make their way into the UK. So instead of buying property in the UK, I buy an offshore bond which buys property investments elsewhere in the world. The result is that I am tax free and the UK is potless. Brilliant idea (which when Googled brings you to a site telling you that to be entrepreneurial you need to create new ideas - work on it Vince).
It strikes me that they are trying to tackle the short sharp people (hedge funds et al) who make a mess of our markets but are missing them. Spread betting is amazingly tax free when it should be taxed as high as possible for example.
They have already realised that upping CGT will create modest revenue so what's the point. Let us remember that 'mitigation' uses the tax rules that apply and makes sure you pay as little tax as you can. Avoidance is illegal avoidance of tax. Vince's use of the word “avoidance” may have been unfortunate or deliberate.
If deliberate he should aim the tax changes at those ruining the country, because the UK taxpayer will respond with more clever ideas to mitigate that tax. They have paid enough.
By Peter McGahan
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Peter McGahan is an Independent Financial Adviser and Managing Director of Worldwide Financial Planning. Worldwide has won 16 Financial Times awards in the last four years. Peter has also been named the top media IFA of the year by Unbiased.co.uk in 2009.
Peter comments regularly in major journals such as the Mail on Sunday, Irish News and Sunday Times and is a weekly columnist for FT Adviser. He has also appeared on Working Lunch and the Today programme. In addition he is an expert on international tax matters for a range of international publications.
Worldwide Financial Planning Ltd are authorised and regulated by the Financial Services Authority. 'The FSA does not regulate Credit Cards, Will Writing and some forms of mortgage and Inheritance Tax Planning.'
Information given is for general guidance only, and specific advice should be taken before acting on any suggestions made. The above represents the personal opinions of Peter McGahan. All information is based on understanding of current tax practices, which are subject to change. The value of shares and investments can go down as well as up.
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