A battle has been raging this week over the coalition Government’s plans to restore capital gains tax (CGT) to its previous 40 per cent level. While Vince Cable, the Business Secretary, says the current rate of 18 per cent is an open invitation to tax avoidance, others say raising CGT to the equivalent level of income tax will hit savers.
"It is very important that we have wealth taxed in the same way as income," said Mr Cable. "At present, it is quite wrong and it is an open invitation to tax avoidance to have people taxed at 40 per cent or potentially 50 per cent on their income, but only taxed at 18 per cent on capital gains. It leads to large-scale tax avoidance so, for reasons of fairness and practicality, we have agreed that the capital gains tax system needs to be fundamentally reformed."
But Professor Philip Booth, of the free market think-tank the Institute of Economic Affairs, says the Government’s plans are baffling. "CGT is a kick in the teeth for those savers who cannot afford to avoid it and for companies that do not load themselves with debt," he claims. "The evidence suggests that an increase in CGT would raise little revenue and would cause a great deal of economic harm at a time when we cannot afford it. The effects on the private rented [property] market could be devastating. Why anybody should want to tax savings and investment yet further, as we recover from the lowest savings ratio in history, is completely baffling."
Who is right? The Government is set to announce its CGT plans in its "emergency Budget" on 22 June – but there will be plenty more lobbying before then. Meanwhile, I hear tax experts are advising clients to take action now to cash in on the lower CGT rate. That seems a little foolish. Any change is unlikely to come into effect until the start of the next tax year – on 6 April 2011 –which should give people plenty of time to think carefully about the disposal of any assets, financial or otherwise.
So while it is advisable to take advice from a tax expert on how CGT changes may affect you, do not be persuaded to rush into a hasty decision before you’ve had a chance to consider things fully.
Almost five million Britons are paying household bills by credit card, according to a study by the price comparison website Moneysupermarket. com. While plastic can be a convenient way to pay, using cards for essentials suggests people are not coping. The worry is that if they do not pay off their balances in full, groceries will end up costing them a packet once interest is added.
But the research highlights some even more alarming trends say they withdraw cash on credit cards. If true, this means they are at once paying a high interest rate because there is no interest-free period on cash withdrawals, which are charged at much more than normal spending. The 2.5 million people who withdraw cash on cards are forking out an extra £90m in fees each year, says Moneysupermarket.
The figure I find most alarming is that 2 per cent of people use credit cards for gambling. They again will be hit by higher interest charges from the moment they bet as most card providers treat gambles as cash transactions. But worse, in my view, is the fact that credit card companies allow this. Borrowing money to gamble is a fast road to ruin and companies which allow people to do so are only helping to contribute to their financial troubles.