Assuming the Lib Dems need a decisive break soon, a Clegg vs Cameron war is on this front a very real possibility
In the run-up to the Budget, Nick Clegg’s tycoon tax has been dealt a mortal blow. But my bet is that it’ll be resurrected within 12 months so desperate are the Lib Dems for a split issue.
What form will it take? Probably the long-term alignment of CGT and income tax – the former accounting for a mere 0.6% of the tax take – so I took the prospect to leading private-client accountant David Kilshaw at KPMG.
Asked how Clegg might create a CGT rate low enough to encourage enterprise while high enough to make HNWs pay their way, he said: ‘You need low CGT to encourage risk and investment, however, you need to police it effectively to prevent income receipts being disguised as capital gains.
‘If one was to consider lowering CGT overall,’ he continued, ‘one would need to look at whether certain more passive gains – such as quoted share portfolios and property – should be taxed at higher rates.’
Assuming the Lib Dems need a decisive break soon, a Clegg vs Cameron war is on this front a very real possibility; don’t forget that the Coalition’s manifesto pledged to tackle tax avoidance and fund part of the personal allowance hike through CGT increases.
Such a possibility is unthinkable, however, to free-market guru Eamonn Butler at the Adam Smith Institute. It’s not just that the top 1% of earners already pay 30% of income tax, he tells me, it’s also that high CGT rates make investors hold on to assets they should be rolling over, producing a net loss to the economy.
So could it be that Britain's CGT rate is at its revenue-maximising point? Would a Lib Dem hike merely represent political gain at public loss?
It goes without saying that the higher the Coalition pushes taxes, the more people will find loopholes or simply move abroad. But the obvious points are often the best. For example, you can’t just tax the rich more to solve the current problems. As Tim Gregory at Saffery Champness said on this lately, ‘There simply aren’t enough UHNWs to make a difference to the whole economy.’