Massive Cost of Capital Gains Tax

The newly formed coalition government has announced plans to increase Capital Gains Tax. However, in addition to the extra tax charges, the move could also cost the UK economy as many as 61,000 jobs. The Government plans to raise the rate of Capital Gains Tax from 18% and potentially bring them into line with the tax applied to your earnings. So, for some people, Capital Gains Tax and Income Tax could be as much as 40 or 50 per cent.

Capital Gains Tax is applied when you sell off a valuable asset. This could be property, shares or other investments. This might not seem to impact too heavily on your finances, if you don’t think that you have significant assets but it’s been suggested that up to a million people will be caught out by this increased rate of tax each year.

The increase in tax aims of to counterbalance and fund the proposed income tax cuts for lower income households. However, as those that hold these valuable assets can decide when and if they want to sell, this increase in Capital Gains Tax could act as a deterrent, taking away any incentive to sell their assets and actually cause a drop in overall economic activity.

Taking a model from other European countries that have gone down this route, it has been estimated that an increase in Capital Gains Tax to 40% would actually result in a total cost to the UK economy somewhere in the region of £3-£5billion. To put it another way, that’s over 60,000 people losing their jobs.

Increasing Capital Gains Tax makes it more expensive for businesses to raise capital. The knock-on effect of this is often a drop in production and as a direct result of that, a smaller workforce. As we know, a sudden change in financial circumstances, like losing your job for example, is a common cause of debt problems. Regardless of the stigma surrounding debt, it is seldom caused by frivolous over-spending and irresponsibility. Getting specialist debt advice as soon as you find yourself in financial strife is key to a smooth, fast acting debt solution. The longer you let the debt go untreated, the more stressful the situation will become and the more limited the debt solutions that will be available to you. Get in touch with an advisor at Harrington Brooks and they’ll talk you through your options.

Ultimately, there was always going to be lasting fallout from the economic crisis and it’s going to affect people in different ways. On the surface, funding a cut in income tax for lower income households with an increase in Capital Gains Tax would seem to be a sensible solution. However, as we’ve seen, this cut in Capital Gains Tax has a knock-on effect that could result in substantial job losses for the workforce that was meant to be served by this drop in income tax. Financial security is about being prepared for these unforeseen eventualities.