Written by Michael Forsyth
19 May 2010
When, in 2008, Gordon Brown introduced a flat rate of capital gains tax at 18 per cent, he also simplified the system. This involved removing a complex labyrinth of allowances and reliefs, which treated different types of assets in different ways and took account of length of time in ownership and the effects of inflation.
From a government that had more than doubled the size of the tax code, it was an unusual and welcome step. George Osborne had quite rightly campaigned in opposition for simpler, flatter, fairer taxes. This marked a victory for his approach.
Of course, Brown went on to increase the top rate of income tax to 50 per cent, creating a greater incentive for people to invent schemes to achieve returns which are taxed as capital gains rather than income. The problem we have, then, is not that capital gains tax is too low, but that the marginal rate of income tax is too high. The independent Institute of Fiscal Studies, the Centre for Policy Studies, the Adam Smith Institute and a chorus of others have warned that the increase to 50 per cent is unlikely to produce additional revenue.