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What did CGT ever do for you? By Simon Sweetman

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19th Jan 2007
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Last week HMRC released Research Report No.26 – an evaluation of the changes to CGT since 1998, prepared fro them by Ipsos MORI. It might be instructive to see where the previous 25 have taken us... (you can find them here if you need to).

This is a large and chunky document, and will be used by HMRC to focus the work on reducing the administrative burdens of the tax. My impression (which I admit is biased by the type of case I usually see) is that the time cost and professional fees needed for a single disposal can be very expensive to return by the time you have waded through valuations, indexation, and the questions about taper relief. The report does not attempt to distinguish the regular CGT payer (as in somebody with a share portfolio) from the very occasional CGT payer who sells a business or a property. That is a pity, since when it comes to burdens this is a significant distinction.

It will not be news to anyone reading this (and I realise that being January that may be almost nobody!) that the changes to CGT since 1998 have been substantial, replacing a crude but simple relief in indexation with a taper system that involved the major complication of a two speed system and in many cases difficulty knowing which part you were in. That was then complicated by four years of tinkering with the definitions for business assets until we hardly knew whether we were on this Earth or Fullers’. Incidentally, 95% of agents claim to have a good understanding of the system and the changes. Born optimists, these agents.

What the report appears to say is that the prospect of paying CGT has virtually no impact on people’s decisions about the acquisition of assets, but that it has some limited impact of their decisions about selling. That appears in my experience to be borne out by the gadarene rush into the purchase of buy to let property and the complicated problems later presented to this and other websites when it seems like a good idea to sell. Furthermore, the rate of tax often seems to have little effect on people: I have seen those prepared to do the most complicated things in the way of EIS deferral (used, not surprisingly, by fewer than 1% of those showing capital gains) in order to save an effective tax rate of less than 10%.

Another slightly scary aspect of this report is the places that people turned to for advice. 27% said that they looked to newspaper columns for advice. It does not say whether this was the financial pages or their horoscopes, but given the depth of tax knowledge of the average financial journalist, they might have done better with the horoscope. Remarkably, only 49% of CGT taxpayers thought the tax complicated. It is not stated what percentage believed the Pope to be a Catholic.

So what it comes down to is asking whether the changes – designed to make us a nation of serial entrepreneurs – have actually had any impact at all on taxpayer behaviour. The answer seems to be that they have not. People who have money acquire assets. People buy business assets because they want to be in business. People buy properties to let because they think the walls are papered with gold and they think that the equity in their houses is like real money. So it goes.

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By User deleted
23rd Jan 2007 09:19

Humour
What joy to read something from a writer who is not afraid to inject a broad seam of humour.

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