Inflation has now reached its highest level for 20 years, today’s figures reveal. But we will suffer not just because of the increased cost of living, but also because the government will penalise us by taxing our illusory gains. The Adam Smith Institute has calculated that about half of the £3.3 billion that the government plans to raise through capital gains tax (CGT) next year (2011-12) will come from taxing purely inflationary gains.
“Fairness” is said to be an attribute of the coalition’s fiscal policy. But it is difficult to see how this can be seen as anything other than extremely unfair. The main CGT rate was raised from 18 per cent to 28 per cent in last June’s budget without taxpayers being allowed to deduct the inflationary element of gains.
Calculating the amount of the tax take accounted for by inflationary gains is relatively simple.
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