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Arun Advani trips over his own laces

Perhaps we should advise Arun Advani to start using the logical equivalent of loafers rather than lace-ups. For his latest advice on capital gains tax ends in his tripping over his own laces.

OK, so, Zahawi.

…. the bigger concern is that the only tax he was required to pay on £27m was £3.7m. That implies an average tax rate of less than 14%, lower than the rate for someone working full-time on the minimum wage.

OK, CGT is at lower rates than income tax. YouGov will, of course, have paid corporation tax. That reduces the capital value of YouGov. So, that capital valuation is already reduced by whatever bleeds out in corporation tax. A point all too few grasp nor note. But, OK:

It is also bad for those actually investing serious cash in companies, because in times of high inflation they can pay large amounts of tax on increases in the value of those investments, even if this increase doesn’t keep up with the price of ordinary goods and services.

Indeed, inflation is a problem with CGT. Either we tax at a lower rate, in order to roughly and approximately deal with this, or we go back to the old system. Which is what Advani proposes:

So what is the answer? One not particularly radical solution would be to largely go back to the capital gains tax structure imposed by the Conservative chancellor Nigel Lawson in 1988. Lawson taxed capital gains at the same rate as income, and provided an allowance for inflation. A move back in this direction, with also some “smoothing” to account for gains being received less frequently than income, would be eminently sensible.

Well, OK. But now see what is done here.

Already rich people who invest (that Piketty r greater than g) gain a tax break over entrepreneurs.

No, really. The guy who starts the company gets his stock at nothing (or £1). So there is no inflation allowance because there’s no starting value. All of the entrepreneurial capital income gets taxed at income tax rates. The capitalist, who puts in the cash to develop the company, gets the inflation allowance on the valuation of the cash put in. OK, for Angel investors this will be pretty small. But for A, B and C round investors this will be a substantial tax break.

Rentiers pay lower tax rates than entrepreneurs. Isn’t that a wondrous manner of encouraging economic growth and limiting the power of that r greater than g and inequality?

Logical loafers for Advani then, so he doesn’t trip over his own laces.

7 thoughts on “Arun Advani trips over his own laces”

  1. Someone working full time (40 hours a week) on minimum wage (£10.42) from age 16 to 67 earns a total of £1,127,027.20 in their lifetime. So Zahawi in one transaction alone has paid more than three times the tax that a minimum wage earner would pay if they were taxed at 100%. So that’s three times the total taxt that such a person could pay by all possible means – income tax, VAT, stamp duty, etc.

    And the complaint is that Zahawi is being unfairly taxed too little.

    The subhead is “Former Conservative chair received a tax break that the poor can only dream of”, but it could equally be “…paid tax beyond the poor’s wildest nightmares” as even a lifetime of total slavery would not allow them to pay that much.

  2. “the only tax he was required to pay on £27m was £3.7m. That implies an average tax rate of less than 14%”

    What it implies is that at least one of those numbers is wrong or that there are other factors at play, such as reliefs or losses available from elsewhere. Without knowing what the actual numbers were and without seeing the actual computation, I wouldn’t myself speculate on this. But then I’m a career tax professional not a journalist.

  3. FWIW, I’m not opposed to some sort of taper relief. The longer an asset is held, the lower effective tax rate. Higher taper relief for business assets.

    We used to have just such a system. IIRC 10 years for non-business assets and 4 years for business assets got you the maximum taper.

    It does make everything more complicated and the reason that Alistair Darling chose an 18% CGT rate when he simplified the system was that statistics suggested that the average rate on Capital Gains under the then existing system after relirfs were taken into account was 18%.

  4. But then I’m a career tax professional not a journalist.

    @Andrew C

    Advani is neither: he is and has only ever been an academic. His only notable feature is his propensity to cry like a baby when challenged on his high tax guff.

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