Capital Gains tax (CGT) has been much reformed in history because it is a very complex tax. CGT is "a tax on the increase in the value of an asset between its acquisition and its disposal" (IFS). Chancellor Alistair Darling introduced his Pre-Budget Reporting on 9 October 2007 which showed many changes notably in tax system. The objective of the government is to create "a strong economy and a fair society". In this report, changes in capital gains tax from 6 April 2008 created large negative reactions by public and lobbies. The amended report published in January 2008 was better but did not convince entirely. The following essay will evaluate the changes to Capital Gains Tax by explaining Capital Gains Tax and its new changes in UK, by discussing the impacts through tax theories and then by discussing the reactions by lobby groups.
[...] Evaluation of Capital Gains Tax Proposals for 2008/09 in UK Capital Gains Tax (CGT) has been much reformed in the history because it is a very complex tax. CGT is “a tax on the increase in the value of an asset between its acquisition and its disposal” (IFS). Chancellor Alistair Darling introduced his Pre-Budget Reporting on 9 October 2007 which showed many changes notably in tax system. The objective of the government was to create “a strong economy and a fair society”. [...]
[...] To conclude, the simplicity of the new tax system proposed by the government is unquestionable. Nevertheless, this simplicity could delete the advantages of the current system concerning capital gains tax. Moreover, a proposal of flat rate and abolition of the taper relief seems strange to a labour party member. This new system stimulates speculation, less encouragement for long term investment, increases inequality between rich investors (current higher tax payers) and poor investors (current lower tax payers). Moreover, this system is more “sustainable” as claimed by government. [...]
[...] January Alistair Darling bows to pressure from small business to revise capital gains tax plan. Times http://business.timesonline.co.uk/tol/business/money/tax/article3248662.ece [Accessed on 1 March] 24 january, 2008.Darling revises capital gains tax. BBC news http://news.bbc.co.uk/1/hi/business/7205811.stm [Accessed on 1 March] Webster, P. January Alistair Darling bows to pressure from small business to revise capital gains tax plan. Times http://business.timesonline.co.uk/tol/business/money/tax/article3248662.ece [Accessed on 1 March] 27 January Capital gains tax chaos: will you be better or worse off? Sunday times http://business.timesonline.co.uk/tol/business/money/tax/article3255967.ece [Accessed on 1 March] CGT changes: some relief for entrepreneurs. [...]
[...] Due to entrepreneurs' competition and lobby groups such as CBI, Alistair Darling integrated a 10% rate on gains above £1m for entrepreneurs in his amended reporting. Using the four canons of taxation of Adam Smith (equity, certainty, convenience and efficiency), strengths and weaknesses of this new tax system could be evaluated. The principal advantage of the new system is its understanding by users notably individuals like landlords and its simplicity even though the new rate for entrepreneurs in January 2008 reintroduced complexities. [...]
[...] Moreover, according to David Frost, BCC's director general, “the government should not have changed Capital Gains Tax system that was working well and helped to foster an entrepreneurial spirit in the UK”. This new system without taper relief was not motivating to invest in long term and to take risks contrary to the current system. A higher tax rate involves an investment less profitable by tax. Entrepreneurship and taking risk are essential in a country to increase competitiveness, to strengthen the economy, to create employment and wealth and to stimulate innovation. [...]
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