Unfair tax: The chancellor's partial u-turn on reform of capital-gains tax is good news for small businesses, some of which will now escape the 80% increase in CGT, but of no solace to larger businesses which on sale would realise gains of more than £1m.
In the nonbusiness sector, however, the converse applies, with 40% taxpayers laughing all the way to the bank as a result of a 22% cut in their CGT rate, while those on lower incomes who accrue modest capital gains on long-term investments will lose out because taper relief and indexation are being abolished.
Consider the case of two individuals who both make chargeable capital gains of £40,000 on assets held for more than 10 years.
The first is a high earner who stands to pay CGT at 40%, the second is a low earner who still has £20,000 of unused basic-rate tax allowance.
Under the old system, after taper relief, the first would face a bill of £9,600 and the second a bill of £6,000. Under the new rules both would pay the same £7,200, showing a £2,400 saving to the higher-rate taxpayer and a £1,200 increase to the low earner.
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This represents a redistribution of wealth from the worse off to the better off. Is this really the government's intention or has it, as usual, not fully considered the implications of its proposals.
Lobbying by the Federation of Small Businesses seems to have succeeded in bringing about the chancellor's u-turn, but who is speaking up for those who will lose out as illustrated above. Taper relief and indexation need to be maintained to recognise people who invest for the long term rather than those who buy and sell to make a quick profit.
A Hemming
Pontypridd
YOUR recent reports on the new form of capital-gains tax give an optimistic view of the proposals for "entrepreneurs relief". The relief will not be available to business angels and investors who have more than 5% of a company's equity unless they are also a director or employee, which is often neither practical nor desirable. This seems to be unnecessarily restrictive and this government is again showing its natural antipathy towards wealth creation.
The changes to capital-gains tax are prejudicial towards long-term investors such as farmers, with the advantage going to "get rich quick" property speculators and the like.
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Nigel Luckett Kinver
South Staffordshire
Loss adjuster: When I read about the enormous write-downs by financial institutions caught up in the sub-prime mortgage debacle, I keep having a recurring question: Has no benefit derived to those who were given the loans? Are they better off since they got their loans? Has everybody defaulted?
Quite often when markets are making money, everyone is making money. But with the sub-prime loans, if many poorer people are now better off, then perhaps the write-downs by the financial institutions were similar to a poverty subsidy.
Bill Smit
bill.smit@btinternet.com
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