Is capital gains tax without bands fair?

ygolometsipe

I think its strange that a person with millions
to invest - stocks /shares / bonds will
pay the same CGT rate 33% as joe bloggs whom is renting with a few thousand to invest. (invest vs getting 0.2% with a current account)

Both get the personal allowance (which is tiny) but i think its fair to say the capital requirement is far higher for Joe.

Am i missing something? is there some reason we're all seen the same for CGT but not for income tax?

Peregrinus

What do you mean by "the capital requirement is far higher for Joe"? The capital required to acquire a chargeable asset doesn't depend on who is acquiring it, surely? Or am I misunderstanding you?

The justification for having a tax-free allowance and lower rate band(s) in income tax is that you do need a certain basic minimum to keep body and soul together, and income tax should only kick in as you start to earn what might be considered disposable income, and the more of that you have, the more it is felt you should contribute to the common good.

And of course you can make exactly the same argument with regard to capital gains. The thing is, though, if your basic needs for food and shelter are supposed to be covered by your income tax allowances and bands, it's hard to argue that you should get a second allowance for the same needs because you are fortunate enough (and wealthy enough) to be able to conduct investment activities.

So the usual way this would be done is simply by adding your chargeable gains to your income, and taxing the lot as though it were income. If you're not already using your tax-free allowance and your lower rate bands agains your earned income, you can apply the unused part to your capital gains. And in fact this is exactly how its done in a number of countries.

In the Irish context, though, pretty well everybody who who is accruing chargeable gains is already likely to be on the higher rate of income tax, so switching to this system would positively disadvantage them.