Wes Streeting's wealth tax

 Although Wes Streetling has pretty close to zero chance of being Prime Minister, that hasnt stopped him opening his mouth. 

Today he has proposed a "wealth tax that works" and said he estimated the reform could raise £12bn a year.

Hmmm. So basically he wants to equalise capital gains tax with income tax.

Currently  capital gains tax is complicated.  

If you are selling property then it is 18% if you are a 20% tax payer and 24% for higher rate tax payers.  If you are selling some other asset then it's 10% for basic rate tax payers and 20% for higher rate tax payers. If you're selling a business (ie an entrepreneur then it's now 18% but was much lower).

Last tax year I had some experience with the capital gains tax process.  I ended up being taxed on money I had spent/invested because I couldn't find the receipts from 20 years ago.  That's unfair.  There is no longer any inflation relief (used to be called indexation relief) so I paid tax on gains which when inflation is factored in should have been a loss. That's unfair.   For example I paid £10,000 in stamp duty 20 years ago on the property which was not claimable 20 years ago and this is only eligible for relief now - not 20 years ago - as the "gain" is crystalised now.  Using the Bank of England inflation calculator that £10k is now £17,745 so I ended up paying tax at 24% on £7,745 = £1,858 in tax. This wasnt just limited to stamp duty but other capital expenditure from 20 years ago.  Not very fair.

Currently the revenue raised from capital gains tax is around £13 - £15 Billion.  It used to be £22 Billion before Labour started tinkering with  the rules - net result is tax revenue has fallen. Rachel's changes backfired so why would Wes's changes be any different? He clearly thinks it wont work since he's saying it will raise £12 Billion when the current system raises more than that now !   I suspect he didnt bother to do his research.

The thing is capital gains tax is not like income tax.  People can choose whether to dispose of an asset and therefore trigger capital gains tax. If you make the tax unfavourable then people make the decision not to dispose of the asset or delay disposal until there's a more favourable government. 

When you die, all your assets are treated as is there was no capital gains and the value of the asset is subject to inheritance tax at 40% after the allowance (except Rachel's interference with pensions where the marginal inheritance tax rate can reach as much as 67% - no wonder pensioners are now squandering their pension). 

Successive governments have reduced the capital gains allowances where they are pretty negligible whilst the allowances for inheritance tax are still comparatively generous although have been subject to massive fiscal drag and not kept parity with inflation. 

So someone may elect not to dispose of an asset if they think they might die within the next 7 years.  It would be a double whammy if they did.  They would be subject to capital gains tax and then the residue would be subject to inheritance tax.  It may make more sense to gift the asset since little of the asset value would be left after capital gains tax.

The key thing is Wes has shown he is equally numerically and economically illiterate as Rachel.