PREM SIKKA Time to change the CGT regime

Prime Minister Rishi Sunak, the richest person in Parliament, has released a summary of his taxes. This was intended to soothe public concerns about wealthy elites paying their taxes. However, the release has also raised questions about unfairness of the UK tax system.

For the three years to 2021/22 Sunak had taxable capital gains of £3,760,588. On this he paid £744,797 in capital gains tax (CGT), an effective tax rate of around 20%.

This will seem odd to the average person whose pay is taxed at rates of 20%–45%. The reasons for Sunak’s low CGT is that gains from the sale of second homes, stocks and shares, artworks, antiques and speculation are taxed at lower rates. Since 2010, CGT rates have varied and currently the rate is 10%–28%. In addition, recipients of capital gains use the National Health Service and social care, but do not pay any national insurance contributions (NIC) on their gains.

There are no logical reasons for taxing return from investment of human capital (e.g. wages) at a higher rate than return on financial capital. Both give identical purchasing power. In 1988, both were taxed at the same rates. Since then governments have bowed to the business lobby.

By taxing capital gains at the same rates as earned income and charging NIC on the same, the government could raise additional annual tax revenues of £25bn. Imagine what that could do for public services.