adjadj, I think there is something a little wrong with you calculation. Your second sentence is a little unclear to me; has you property gone up by about the same as general inflation (which is about 73%increase in 20 years) or to a value 75% more than general inflation? I assume the former as this concurs with your first sentence. If so, in real terms it is not "most" of your gain that is going in tax, it is ALL of it. The real tax rate is infinite. If the latter I estimate the real tax rate in your case will be around 32% give or take. In fact the headline 24% (or 28%) will always be a minimum in real terms (assuming inflation not deflation of money). In fact I calculate that if house prices inflate at 25% above the general inflation rate (say CPI) a 24% nominal tax rate represents 100% tax rate in real terms. 24% will always be a minimum in real terms; even if house prices double every year the real rate will be a tiny smidgeon above 24%.
Is it realistic to think that in the (very?) long term house prices will continue to rise at 25% or more above general inflation. It seems unlikely - at some point there will be an inflection, even if it is caused by some sort of civil war when the majority of the population are living in tents in Hyde Park!!
Fundamentally, capital gains tax without indexation is unfair. But then tax is not about fairness. It is not even about appearing to be fair. Principally it is about appealing to the voter base to maximise the chances of re-election. And most voters are only interested in "what's in it for me". And worse, our education system is so bad nowadays that the wool can be pulled over the voters eyes very easily. And making tax complicated makes this even easier. But at least complex tax results in plenty of work for accountants and financial advisers.
Here in rural Yorkshire farmers transport animals in pickups all the time! I recall in my youth I had a date with a young lady I had recently met. My car was in for repair and I had to collect her in the farm pickup. "I am sorry about the smell" I said as she got into the front seat that I had spent a couple of hours cleaning. "We have been carrying pigs this afternoon." "Oh" she said, "I thought it was you!"
There is another potential issue as well. My son was in a music band that bought a Merc Sprinter "bandvan" - 7 seats and a large van compartment at the rear. No-one thought to check the log book details when they bought it. It had been converted from a three seater van. The implication was discovered at the Swiss border when they were on tour. Their documentation was checked and they were prohibited from continuing with more than three people. They had to hire a car in a panic for the remainder of the tour.
I am a pensioner. I receive income from occupational pensions and from a SIPP. Last year I took a substantial sum out of the SIPP for a non-recurring purchase which took me into a higher tax bracket. For this year they changed my code assuming that my current year income HMRC was similar to last year. I had to repeatedly call and eventually get different agents who just refused to change my code and spoke to me as though I was an imbecile. They seemed unable to comprehend the idea that I control my SIPP income and it it will not take me into higher tax this year. Letters go unanswered. I fear that I will have to claim a refund or wait for it to wash out in adjusted code next year. Allowing users to adjust tax codes would be sooooo much easier.
That would be very unfair on families that need to move because of an unexpected change in circumstance. An accountant, say, who moves location to take up a new job and that job does not work out. Taxman is already getting a slug of tax in SDLT on the property transactions. Government might get around this by making rules more complicated but tax rules are already complicated enough and it just leads to inefficient waste of resources in arguments like this one. With any tax rules there will always be "loopholes" - we just have to live with it.
There has to be a lot more going on here than we read in this report. But just because a company is a listed public company does not mean that the quoted price is a real market price - it can be highly manipulated. An example is the Neil Woodford funds which had to maintain a set percentage investments in quoted companies. In Woodfords case he got around this by floating one of his private companies at (arguably) an inflated price. Since he held 100% of the equity, and none actually traded this maintained a fund NAV higher than might have been justified and also meant that he had maintained his required percentage in listed companies.
In the case of Access Intelligence the record shows that the transaction was not long after the company floated on AIM. In fact virtually no shares traded for nearly a year. When some meaningful trades of less than 10,000 shares were done some 5 months after this gift transaction, the share price plummeted 75%. There is no way that if 190,000 shares were offered to the market that they would have achieved the stated price! The market was wholly false. Well done to HMRC for uncovering this. If fraud was suspected I would like to see that pursued as well.
If government are serious about reducing fraud and wrongdoing they would do better to focus on implementing the rules and systems we already have and handing out meaningful punishments including imprisonments to miscreants. I know of numerous corporate frauds that have been reported to the FCA where absolutely nothing is done. The FCA are chocolate teapots. Directors/auditors/advisers - all in a cosy club!
This begs a couple of questions. 1) Why won't the police prosecute ? It would seem to be a straightforward case. If criminals like this get away with their crimes knowing that nothing is likely to de done, there is no deterrent at all. They should be hammered - hard. If you have 4 cases you can be sure that other accountant practises have other cases - the scale could be significant. 2) Who is it that has been defrauded, the client or HMRC? I am no lawyer, but it seems to me that anyone operating a small business needs to know the rules around this. Are there different rules when HMRC are involved?
Years ago (it seems like a lifetime) I was working for the European subsidiary of a major US company. The US wanted to streamline accounting and mandated that we had to use their in-house accounting system. The trouble was, it could not handle VAT. The US bosses did not know what VAT was and asked for an explanation. When we explained they said "Simple, it is obviously the same as the US sales tax - just treat it as we do."
My answers
adjadj, I think there is something a little wrong with you calculation. Your second sentence is a little unclear to me; has you property gone up by about the same as general inflation (which is about 73%increase in 20 years) or to a value 75% more than general inflation? I assume the former as this concurs with your first sentence. If so, in real terms it is not "most" of your gain that is going in tax, it is ALL of it. The real tax rate is infinite. If the latter I estimate the real tax rate in your case will be around 32% give or take. In fact the headline 24% (or 28%) will always be a minimum in real terms (assuming inflation not deflation of money). In fact I calculate that if house prices inflate at 25% above the general inflation rate (say CPI) a 24% nominal tax rate represents 100% tax rate in real terms. 24% will always be a minimum in real terms; even if house prices double every year the real rate will be a tiny smidgeon above 24%.
Is it realistic to think that in the (very?) long term house prices will continue to rise at 25% or more above general inflation. It seems unlikely - at some point there will be an inflection, even if it is caused by some sort of civil war when the majority of the population are living in tents in Hyde Park!!
Fundamentally, capital gains tax without indexation is unfair. But then tax is not about fairness. It is not even about appearing to be fair. Principally it is about appealing to the voter base to maximise the chances of re-election. And most voters are only interested in "what's in it for me". And worse, our education system is so bad nowadays that the wool can be pulled over the voters eyes very easily. And making tax complicated makes this even easier. But at least complex tax results in plenty of work for accountants and financial advisers.
If you go naked you will be flaunting your assets!
Here in rural Yorkshire farmers transport animals in pickups all the time! I recall in my youth I had a date with a young lady I had recently met. My car was in for repair and I had to collect her in the farm pickup. "I am sorry about the smell" I said as she got into the front seat that I had spent a couple of hours cleaning. "We have been carrying pigs this afternoon." "Oh" she said, "I thought it was you!"
There is another potential issue as well. My son was in a music band that bought a Merc Sprinter "bandvan" - 7 seats and a large van compartment at the rear. No-one thought to check the log book details when they bought it. It had been converted from a three seater van. The implication was discovered at the Swiss border when they were on tour. Their documentation was checked and they were prohibited from continuing with more than three people. They had to hire a car in a panic for the remainder of the tour.
I am a pensioner. I receive income from occupational pensions and from a SIPP. Last year I took a substantial sum out of the SIPP for a non-recurring purchase which took me into a higher tax bracket. For this year they changed my code assuming that my current year income HMRC was similar to last year. I had to repeatedly call and eventually get different agents who just refused to change my code and spoke to me as though I was an imbecile. They seemed unable to comprehend the idea that I control my SIPP income and it it will not take me into higher tax this year. Letters go unanswered. I fear that I will have to claim a refund or wait for it to wash out in adjusted code next year. Allowing users to adjust tax codes would be sooooo much easier.
That would be very unfair on families that need to move because of an unexpected change in circumstance. An accountant, say, who moves location to take up a new job and that job does not work out. Taxman is already getting a slug of tax in SDLT on the property transactions. Government might get around this by making rules more complicated but tax rules are already complicated enough and it just leads to inefficient waste of resources in arguments like this one. With any tax rules there will always be "loopholes" - we just have to live with it.
There has to be a lot more going on here than we read in this report. But just because a company is a listed public company does not mean that the quoted price is a real market price - it can be highly manipulated. An example is the Neil Woodford funds which had to maintain a set percentage investments in quoted companies. In Woodfords case he got around this by floating one of his private companies at (arguably) an inflated price. Since he held 100% of the equity, and none actually traded this maintained a fund NAV higher than might have been justified and also meant that he had maintained his required percentage in listed companies.
In the case of Access Intelligence the record shows that the transaction was not long after the company floated on AIM. In fact virtually no shares traded for nearly a year. When some meaningful trades of less than 10,000 shares were done some 5 months after this gift transaction, the share price plummeted 75%. There is no way that if 190,000 shares were offered to the market that they would have achieved the stated price! The market was wholly false. Well done to HMRC for uncovering this. If fraud was suspected I would like to see that pursued as well.
If government are serious about reducing fraud and wrongdoing they would do better to focus on implementing the rules and systems we already have and handing out meaningful punishments including imprisonments to miscreants. I know of numerous corporate frauds that have been reported to the FCA where absolutely nothing is done. The FCA are chocolate teapots. Directors/auditors/advisers - all in a cosy club!
This begs a couple of questions. 1) Why won't the police prosecute ? It would seem to be a straightforward case. If criminals like this get away with their crimes knowing that nothing is likely to de done, there is no deterrent at all. They should be hammered - hard. If you have 4 cases you can be sure that other accountant practises have other cases - the scale could be significant. 2) Who is it that has been defrauded, the client or HMRC? I am no lawyer, but it seems to me that anyone operating a small business needs to know the rules around this. Are there different rules when HMRC are involved?
Years ago (it seems like a lifetime) I was working for the European subsidiary of a major US company. The US wanted to streamline accounting and mandated that we had to use their in-house accounting system. The trouble was, it could not handle VAT. The US bosses did not know what VAT was and asked for an explanation. When we explained they said "Simple, it is obviously the same as the US sales tax - just treat it as we do."