Critically analyse the extent to which reform is necessary within the current system of property taxation. The WritePass Journal

Critically analyse the extent to which reform is necessary within the current system of property taxation. Abstract Critically analyse the extent to which reform is necessary within the current system of property taxation. ; p. 4). Capital Gains Tax CGT is a tax that is charged by the government on non-invested assets that have been sold at a higher price than they were bought for. CGT only becomes payable if the person is classed as a chargeable person; Reid v IRC (1926) 10 TC 673, and   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   if the non-invested assets are capable of taxation; Cottle v Coldicott [1995] STC (SCD) 239 (sections 2 and 21 of the Taxation of Chargeable Gains Act 1992 (TCGA). The amount that is to be charged will be dependent upon the profit that was received minus any expenses incurred; Garner v Pounds Shipowners and Shipbreakers Ltd [2000] UKHL 30. Although some believe that CGT is considered an essential tax by some (Morgan: 2011; p. 1), others disagree and instead argued that it is unfair and fails to comply with the four canons of taxation. Hence, it was argued by Feldstein (1994; p. 1) that CGT is wasteful on the basis that it inhibits economic growth. It has therefore been suggested that CGT ought to be completely abo lished since it penalises those â€Å"who are willing to forego current consumption to finance future prosperity† (Mitchell: 2010; p. 1). Arguably, if CGT was abolished economic growth would be achieved and individuals would have higher living standards. Nevertheless, given that CGT is not always payable it is questionable whether its abolishment would be entirely necessary because as stated by Lee (2010; p. 573) that; â€Å"in many cases a gain on the disposal of an asset will not be chargeable either because the gain itself is exempt or because the asset is not chargeable.† Despite this, CGT does appear to be an unfair tax when it is payable since capital gains are subjected to double taxation. Consequently, the incentive to save and invest is reduced as investors will have to pay tax twice, which is widely discouraging (Stainforth: 2010; p. 2). This has an overall impact upon the economy since the economy needs a level of savings so that financial investments can be made as this boosts economic growth (OECD: 2007; p. 74). In order to ensure that the four canons are being adhered to, reform is inevitable. This is because â€Å"the tax system in the UK, like that of most modern economies, is full of non-neutralities which are hard to justify, wasteful, and ripe for reform† (IFS: 2011; p. 40). In alleviating this unfairness it would seem appropriate to reduce the tax rates imposed upon capital gains to the lowest rates possible (Kinsley: 2012; p. 1). Furthermore, the reduced rates should also be applied to â€Å"corporate equity to reflect corpora tion tax already paid and serious consideration should be given to re-introducing relief for inflation† (Adam: 2008; p. 236). In addition to this, CGT rates should also be aligned with those that are imposed upon earned income and dividends so that double taxation is avoided and tax breaks should be introduced for owners of business assets. Whatever changes are made to the current CGT system, it is important that the four canons are adhered in order to avoid creating an uncertain and unstable tax system. This is because, as put by Eastaway (2003; p. 18); â€Å"the UK tax system gets more complex each year as it is increasingly used to try to influence commercial decisions instead of merely to collect revenue.† As a result of this, taxpayers find it extremely difficult to calculate their tax bill, which is largely ambiguous. Stamp Duty Land Tax SDLT is another property tax that is in need of reform because of the fact that a person’s wealth is determined based upon their home. It has been argued by many that this is an unfair way to assume someone’s wealth because there two people that earn exactly the same wage, yet because one chooses to spend his wages improving his own, he is taxed more (Eric: 2010, p. 2). The four canons are clearly not being adhered to here and unless the high tax burden that is currently being imposed upon such individuals is removed, unfairness will continue to ensue. Accordingly, individuals should not be required to pay SDLT for every single property they own as this would impose injustice on those who need more than one property for work. Essentially, such individuals should not be forced to pay extra tax in such circumstances, yet it is arguable whether it should be completely abolished. It has been suggested that a wealth tax would be more suitable than SDLT: â€Å"welfare is inc reased if the revenue currently collected by stamp taxes on property transactions were instead collected by a land tax and the main argument against seems to be that the only good taxes are old taxes† (Weale: 2011, p. 1). Other changes that could be made include the introduction of SDLT for bulk purchases. This will remove any current barriers to investing in residential property and individuals would no longer be discouraged from purchasing multiple residential properties (Norman, 2011, p. 1). Conclusion It is clear from looking at IHT, CGT and SDLT that the current system of property taxation is in need of reform. All of these taxes fail to satisfy all of the four canons of taxation and are thereby considered unjustifiable. Great unfairness ensues as a result of this and many of the taxes are deemed irrelevant. This is especially the case in relation to IHT since it is argued that because it can be avoided it is pointless having it in place as only those who fail to plan effectively will end up paying IHT. Many suggestions for its complete abolishment have been made, though it has also been suggested that IHT should receive greater publicity so that individuals will have the opportunity to avoid it. Furthermore, an exemption on the main family home could also be introduced as well as different rates for family members. This would help to maintain a more equal distribution of wealth and greater fairness would follow. Suggestions for the abolishment of CGT have also been made on the b asis that it is a wasteful tax and unfair to those who choose to spend their earnings on improving their family home. In reducing the unfairness the tax rates could also be reduced and aligned with those that are imposed upon earned income and dividends. Tax breaks could also be introduced for business assets and greater clarity and stability could be created. The abolishment of SDLT could also be made so that an individual’s wealth is not being determined by their family home and this could be replaced by a wealth tax. On the other hand SDLT could be reformed so that individuals do not pay SDLT for every property they own and a single payment for bulk purchases could also be introduced. References Atkinson, B. A., and Bourguignon, F., (2000) Handbook of Income Distribution, Business Economics, Elsevier. 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