Capital Gains

You don't think that everybody would be investing in them then?

Not necessarily. It is only recently that the CGT rate has been less than the IT rate. Most people with money to invest will probably already have some CG type investments so faffing around to try to use up the remains of your allowance each year is probably a difficult exercise.

However, now that CGT is less than IT it makes sense to convert all of your investment to CG if possible, but this has only been the case for a couple of years.

(So that's - yes everybody would now be interested in such an investment vehicle, but previously they wouldn't have, which is why the market hasn't produced them.)

tim

You mean "which is why the market hasn't produced them YET", of course. One thing you can be sure of, though, is that once the market does produce them, and once people have flocked to it in droves, the government will again tinker with the income/gains relative tax rates.

To return to the original question, do not government stocks count as "safe investments that will result in reliable capital gains"? OK, there will still be an income element (dividends), but there's a good mix out there, isn't there, with some stocks giving lower dividends and higher gains, and others vice versa. The gains won't be spectacular, but you can't really expect both safe and spectacular, can you?

Gilts are not subject to CGT, see

Some assets aren't liable to Capital Gains Tax at all because they?re exempt. These include:

• your car * personal possessions worth up to £6,000 each, such as jewellery, paintings or antiques * stocks and shares you hold in tax-free investment savings accounts, such as ISAs and PEPs * UK government or ?gilt-edged? securities eg National Savings Certificates, Premium Bonds and loan stock issued by the Treasury * betting, lottery or pools winnings * personal injury compensation * any foreign currency held for your own or your family?s personal use outside the UK (eg if you've made a gain because of a change to the exchange rate)

Capital gains rates are designed to encourage long-term investing. Most people can get a significant advantage from holding stock investments for more than one year: Short term gains on stock investments are taxed at your regular tax rate; long term gains are taxed at 15% for most tax brackets, and zero for the lowest two. The gain is not realized until the asset is sold. A capital gain may be short term (one year or less) or long term (more than one year) and must be claimed on income taxes. A capital loss is incurred when there is a decrease in the capital asset value compared to an asset's purchase price.

have you missed the UK on the start of the group name. The above is not the UK CGT rates

tim

It's another of these wretched intrusions from something calling itself finance banter.

I thought there was no CGT on gilts.

Robert

One of the most unfair features of the capital gains tax is that it taxes gains that may be attributable only to price changes, not real gains. Different analysts give different views regarding Capital Gains Tax Cut. Let us analyse both step wise.

Arguments for the motion:

1. A cut would increase investment, output, and real wages. If the tax on the return from capital investments--such as stock purchases, new business start-ups, and new plant and equipment for existing firms--is reduced, more of those types of investments will be made. Those risk-taking activities and investments are the key to generating productivity improvements, real capital formation, increased national output, and higher living standards.

1. A cut would liberate locked-up capital for new investment. For those already holding investment capital, a capital gains tax reduction might create an "unlocking effect": individuals would sell assets that have accumulated in value and shift their portfolio holdings to assets with higher long-run earning potential. The unlocking effect might have strong positive economic benefits as well: the tax cut would prompt investors to shift their funds to activities and assets--such as new firms in the rapid-growth, high-technology industry--offering the highest rate of return.

2. A cut would produce more tax revenue for the government. If a capital gains tax cut increases economic growth and spurs an unlocking of unrealized capital gains, then a lower capital gains rate will actually increase tax collections.

1. A cut would eliminate the unfairness of taxing capital gains due to inflation. A large share of the capital gains that are taxed is not real gains but inflationary gains. The government should not tax inflation.

Arguments against the motion:

1. Provide a large tax cut for the wealthiest citizens.

1. Have very little positive impact on the economy. Many argue that taxes do not influence investment decisions and that even if there were an unlocking effect.

2. Increase the budget deficit. If a capital gains tax cut reduces revenues and increases the budget deficit, then savings and investment might actually fall after the tax cut. That would only worsen reported capital shortage.