Labour's Plan to Increase Capital Gains Tax to 45% Gains Momentum
Shadow chancellor Rachel Reeves has reaffirmed Labour's commitment to raising Capital Gains Tax (CGT) if they win the upcoming election. This move would include targeting private equity executives with the intention of levying a 45% tax rate on their returns. These sums are currently subject to capital gains tax of just 28%.
Reeves emphasized the party's determination, stating, “We will close the private equity loophole where bonuses are not taxed properly.” It might be said these bonuses are already taxed properly by being subject to capital gains tax, but Labour feels the 28% rate is at odds with the wider labour market where people pay up to 45% tax.
Labour's intention to address this issue was initially announced in 2021, highlighting a longstanding concern regarding the preferential treatment received by private equity groups in incurring capital gains tax rather than income tax. Reeves accused them of benefiting from tax breaks while engaging in what she described as the "asset stripping" of valuable national assets.
Despite some internal discussions within the Labour party regarding potentially watering down the policy to mitigate concerns about deterring international investment, Reeves and her team remain steadfast in their stance. The proposal to close the loophole has been deliberated for months and a senior party figure acknowledged the delicate balance between increasing taxes on private equity executives and maintaining an attractive environment for international investment.
However, Reeves' spokesperson reiterated the party's position, asserting, “We’re going to close the tax loophole that allows private equity fund managers to pay capital gains tax on their bonuses, and tax it as income instead.” This statement underscores Labour's unwavering commitment to addressing what they perceive as an unfair advantage enjoyed by a select group of individuals within the private sector.
Labour appears resolute in its pursuit of tax justice and a fairer economic landscape.
Labour's CGT Reforms Look Ever More Likely Amid PM Tax Revelations
New revelations about Prime Minister Rishi Sunak's tax affairs have sparked fresh debate, which Labour will no doubt be contemplating using in order to strengthen their argument for closing Capital Gains Tax loopholes. Sunak reportedly paid only £508,308 in tax during the fiscal year 2022/23 despite having a total income of £2.2 million.
A huge portion of Sunak's earnings, nearly £1.8 million, came from capital gains, while he also received £293,407 from other interest and dividends, and earned £139,477 from his roles as Prime Minister and an MP. However, what has drawn attention is Sunak's overall tax rate, estimated at around 23%, primarily due to the preferential treatment of capital gains, which are taxed at a lower rate than income.
Robert Palmer, executive director at Tax Justice UK, emphasized the disparity in taxation between income derived from wealth and income earned through employment, stating, “At the moment someone who earns most of their money from their wealth – like the Prime Minister – pays a much lower tax rate than someone who relies on going out to work for their living.” He further underscored the need to rectify this imbalance to ensure equity in the tax system.
Dan Neidle from the Tax Policy Associates think-tank provided insight into Sunak's tax rate, explaining, “Many people would say ‘how come he's paying so little tax'? The answer is we have a low rate of capital gains on shares. He's not avoiding tax, it's just how the system works." Neidle's remarks shed light on the structural aspects of the tax system contributing to Sunak's lower tax liability.
Labour will no doubt aim to leverage the discrepancy in tax rates to bolster their case for closing the perceived loophole with CGT. This loophole allows individuals to benefit from lower tax rates on capital gains, creating a scenario where those earning predominantly from wealth pay proportionately less tax than those reliant on income from work. The party contends that addressing this disparity is crucial in ensuring a fair and equitable tax regime.
As debates surrounding tax fairness continue, Sunak's tax affairs serve as a focal point for discussions on the need for comprehensive tax reform, particularly in addressing loopholes that perpetuate inequalities in the system.
How Can Qubic Help?
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