Our tax system is just too complicated – it’s time to simplify
Matthew Lynn City columnist
Over the last few weeks, Labour’s deputy leader Angela Rayner has been under intense scrutiny over the tax due on the sale of a property in Manchester. It turns out that Rayner bought a semi-detached council home in 2007, with a discount under the right-to-buy scheme, and then sold it eight years later for a profit reported at around £48,000. The argument is about whether she should have paid capital-gains tax (CGT) on the money she made, which depends on whether she was actually living in that house with her husband, or had registered somewhere else as her main property.
The actual amount is fairly trivial. Rayner would have owed less than £4,000 in CGT, even if the property had been liable for the tax. The police have looked into it, and in due course HMRC may as well. We’ll have to see what happens. Compared with some of the Tory sleaze scandals, there is hardly a huge amount of money at stake. Even so, Rayner will probably very soon be the deputy prime minister in a new Labour government, and one of the most powerful people in the country. And she has been such a fierce critic of her Conservative rivals, demanding instant resignations for even the slightest hint that a rule has been broken, that she can hardly complain if she is held to the same exacting standards herself.
Head-spinning complexity
Rayner’s personal behaviour aside, we should, however, learn the real lesson of the affair. Our tax system is far too complicated. Take CGT. Your main home is exempt from capital gains, but it has to be registered as the main place where you live, if you to own more than one property. On a second property, depending on whether you spend any time there, you were taxed on any gains you made at 28%, until the chancellor brought that down to 24% in the last Budget. If the property is held in a limited company, then it will be taxed under a separate set of rules, with corporation tax charged if you sell it at a profit. On any other capital gains you make, you’ll be charged the current rate of 20%, unless it is from a firm you have set up yourself, in which case there is a lower rate of 10%. Except that only applies to the first £1m. Clear? Probably not. It’s enough to make any normal head spin.
It doesn’t stop there. The same is true of dividend, pension, freelance and company taxes. If you
