Fixing capital gains tax: CAGE research contributes to the Chancellor’s tax reviewThursday 12 Nov 2020
In July 2020, Chancellor Rishi Sunak requested a review of capital gains tax. The recommendations of the reviewLink opens in a new window were published on 11 November, and draw significantly on research by Arun Advani, CAGE Impact Director and Assistant Professor of Economics at the University of Warwick.
Advani’s research, co-authored with Andy Summers (International Inequalities Institute, London School of Economics and CAGE Research Associate) and Adam Corlett (Resolution Foundation), revealed that capital gains are a regular and substantial source of remuneration for many of the wealthiest individuals. As capital gains are taxed at a lower rate than income tax, many are choosing to receive income as capital gains and in many cases pay lower taxes than those on average incomes.
Advani’s research with Summers also revealed that capital gains have been masking rising inequality in the UK over the past decade. While the incomes of the wealthiest individuals have stagnated over the last ten years – in a similar way to those on lower incomes – remuneration from capital gains has increased, widening the gap between rich and poor.
The chancellor’s review was compiled and written by the Office of Tax Simplification. Arun Advani was a member of the consultative committee for the report, which draws directly on his research and recommendations. Most significantly, it calls for capital gains tax rates to be aligned more closely with income tax to prevent behavioural responses by the wealthiest to avoid income tax.
Dr Advani is also presenting findings from his recent research on capital gains and the taxation of wealth at the Treasury Committee’s Parliamentary Inquiry into Tax after coronavirus in November.
Read the Research
Advani, A. and Summers, A. (2020), How much tax do the rich really pay? New evidence from tax microdata in the UK, CAGE policy briefing, no.27
Advani, A., and Summers, A. (2020), Capital gains and UK inequality: new evidence from tax microdata, CAGE policy briefing, no.19
Advani, A. and Summers, A. (2020) Capital gains and UK inequality, CAGE working paper, no.465
Advani, A., Summers, A., and Corlett, A. (2020), Who gains? The importance of accounting for capital gains, Resolution Foundation report
Advani, A. and Summers, A. (2020), Capital gains and hidden inequality, Advantage Magazine, Austerity 10th Anniversary Special Issue