A left wing think-tank is calling for investors to pay capital gains tax (CGT) at higher rates to balance tax paid by workers and the wealthy.
The Institute of Public Policy Research (IPPR) wants to tax income earned from investing in property, which is currently taxed at the same rate as employment income and the scrapping of CGT reliefs.
The think-tank argues that wealthy property owners pay CGT at a basic rate of 18 per cent and a higher rate of 28 per cent, while workers pay a 20 per cent basic rate and 40 per cent higher rate.
That means, says the IPPR, landlords with £50,000 of capital gains pay less tax than a worker earning the same level of income.
“Lower tax rates for the wealthy than for ordinary earners are fundamentally unfair,” says the IPPR.
“They distort economic behaviour and create opportunities for tax avoidance. “
The report also estimates changing CGT tax rates could raise an extra £120 billion for the Treasury over five years, plus an extra £25 billion if the CGT exemption on death is abolished – but these figures could drop £90 billion and £15 billion depending on ‘behavioural impacts’.
“There are large uncertainties around these estimates, but we still expect these changes to raise significant sums. Our proposal would substantially increase revenues and make the tax system fairer,” says the report.
The report also proposes that all income is lumped together for taxing, including capital gains, earnings, dividends and savings.
“This reform would involve removing most exemptions, allowances and reliefs that currently exist for CGT and dividend taxes,” says the IPPR. “But the exemption on primary homes should be maintained.”
The IPPR also recommends non-residents should pay tax on shares as well as property to stop investors moving overseas to make savings to reduce their CGT bills.