Wednesday, November 30, 2011

Tax fallacy of the week: The Frozen CGT threshold

The media is reporting that the Chancellor's decision to freeze the annual CGT exemption at £10,600 is bad news for 'normal' people. What rot.

I read in The Telegraph today, for example,
“It looks like this freeze will pay for the SEIS,” [Seed Enterprise Investment Scheme]
and that:
“That will be very good for start-up businesses, but will have limited appeal for ordinary investors. This is robbing the ordinary people to pay for perks for the very rich.”
Come on. The annual exemption is intended as a convenience to avoid 'normal' people being in default for failing to disclose relatively small capital gains. I had been more concerned the exemption was going to be reduced to £1,000 (as was proposed in the Lib Dem manifesto).

As it stands the only people to benefit from the exemption on a regular basis need to be wealthy enough to realise capital gains of more than £10,000 each year. 'Gains' here means capital profits, which means disposing of capital assets (eg shares) worth many times that sum. They do it as an alternative to generating a further £10,000 of income which would be subject to 40% or 50% tax. Few 'normal' people can do that year after year.

So today I speak to all those commentators mourning the freezing of the CGT annual allowance at £10,600. For attempting to paint this as a problem for 'normal' people you get my Tax Fallacy of the week award.

No comments:

Post a Comment