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Treasury could raise £16bn a year if shares and property were taxed like salaries

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Treasury could raise £16bn a year if shares and property were taxed like salaries

The treasury could raise an extra £16bn a year if the low tax rates on profits from shares and property were increased and brought back into line with taxes on salaries.

Exclusive analysis of data on the 540,000 wealthiest individuals in the UK – the top 1% – shows how decades of low taxes on capital gains, a type of income mainly available to the wealthiest in society, is creating a new breed of “super-gainers”.

The findings will boost calls for reforms which spread the tax burden more fairly. The chancellor, Rishi Sunak, was criticised by members of his own party last month after increasing national insurance rates to raise billions for health and social care while leaving the earnings of the wealthiest largely untouched.

Under the current system, income – which covers earnings such as salaries – is taxed at a maximum rate of 45%. Capital gains – the profit made when an asset such as shares or property is sold for more than it cost to acquire – is taxed at much lower rates. Gains from shares attract a maximum rate of 20%, while the maximum for property is 28%.

Analysis has found that since the late 1990s, the proportion of earnings that are declared as capital gains by the top 1% has ballooned: just 3% of their income came through gains in 1997, doubling to 5.4% in 2010. By the 2017/18 tax year it had reached 13.3%.

Among the extremely rich – the 50,000 people who make up the 0.1% – the amount declared in capital gains grew by 213% between 2007 and 2017. By contrast, this group’s salaries have not grown as fast. Their median income grew by 22% between 2007 and 2017.

The analysis was carried out for the Guardian by Arun Advani, the assistant professor of economics at the University of Warwick’s CAGE Research Centre and a research fellow specialising in tax at the Institute for Fiscal Studies.

“We’ve seen that by reducing capital gains tax rates, the primary thing it has done is encourage people to take income as capital gains, reducing tax take without providing any wider benefits. It is hard to explain why people who are more able to restructure their income in this way should pay less than those who can’t,” Advani said.

Much of the information about the capital gains of the wealthiest 1% of taxpayers is not available in any public dataset. The analysis was only possible because Advani and his fellow researchers were given access to a secure room at HMRC, where they were able to view anonymised tax returns for the super-rich.

In a paper published last year, based on their HMRC research, they found this type of income was very concentrated at the top, with the 5,000 highest earners receiving 54% of all capital gains.

Because gains are so lightly taxed, the wealthiest pay a far lower share of their earnings to the tax authorities than most workers. The top 0.001% – 400 people with earnings of between £9m and £11m – were paying an effective tax rate of just 21%, Advani found. This was slightly less than someone on median earnings of £30,000, whose effective rate was 21.4%.

Using the latest data on capital gains, as recorded by HMRC, Advani estimates that if gains were taxed at the same rates as salaries, an extra £13.8bn could have been collected the in 2016-17, rising to £15.9bn in 2019-20.

The idea of alignment is not new. The former Conservative chancellor Nigel Lawson introduced parity between capital gains and income taxes in 1988, but this was unpicked a decade later by his Labour successor, Gordon Brown.

“The chancellor doesn’t just decide how much money to raise, he also has to choose how to do it fairly. So far he has raised taxes on those who work to earn a living, in order to protect those who live off income from wealth,” Advani said.

Support for reform is growing. Labour has indicated it would increase taxes on earnings made from owning shares and investment properties, although the party has yet to set out detailed plans.

Adam Corlett, the principal economist at the Resolution Foundation, said there were “glaring holes” around capital gains which needed to be addressed.

“Thanks to the glaring holes in the capital gains tax system, it’s quite possible for the wealthiest to pay a tax rate of only 10%, or even zero, while low income workers pay much higher rates. That should change,” he said.

The argument against such tax reform is that it might, in turn discourage investment.

Helen Miller, the deputy director and head of tax at the Institute for Fiscal Studies, said there were “good reasons to reform capital gains tax” but added it required a “two-pronged approach” to avoid the risk of discouraging investment.

“[The government] should reform the definition of what is taxed, including by removing some reliefs and adding others, which would allow it to raise rates while minimising distortions to saving and investment incentives,” she said.

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DMO Issues Two FGN Savings Bonds At N1,000/unit

The Debt Management Office (DMO) has announced its Dec. issuance of two Federal Government of Nigeria (FGN) Savings Bonds at N1,000 per unit.

According to a statement by the DMO, the first offer is a two-year FGN Savings Bond due on Dec. 14, 2022, at an interest rate of 12.255 percent per annum.

The second one is a three-year FGN Savings Bond due on Dec. 14, 2025, at a 13.255 percent interest rate per annum.

It said that the opening date for the issuance of the bonds is Dec.5, the closing date is Dec. 9, the settlement date, is Dec. 14 while coupon payment dates are March 14, June 14, Sept. 14, and Dec. 14.

“They are issued at N1,000 per unit subject to a minimum subscription of N5,000 and in multiples of N1,000 thereafter, subject to a maximum subscription of N50 million.

“Interest is payable quarterly, while bullet repayment is made on the maturity date, ” it said.

It added that FGN savings bonds qualify as securities in which trustees can invest under the Trustee Investment Act.

“They qualify as government securities within the meaning of the Company Income Tax Act and Personal Income Tax Act for tax exemption for pension funds amongst other Investors.

“They are listed on the Nigerian Stock Exchange and qualify as liquid assets for liquidity ratio calculation for banks,” it said.

The statement said they were backed by the full faith and credit of the Federal Government of Nigeria, and charged upon the general assets of the country.

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DMO Says It has Raised N130bn From Sukuk For Key Road Projects

The Debt Management Office (DMO) says it raised N130 billion from its N100 billion sovereign al ’Ijarah sukuk opened on November 21, 2022.

DMO, in a statement on Monday disclosed that the offer of N100 billion was “upsized to N130 billion due to the over 165 percent subscription level”.

The Sukuk is a strategic initiative that supports infrastructure development, promotes financial inclusion and deepens the domestic securities market.

Since the establishment of the initiative in September 2017, Nigeria has issued four sovereign sukuk: 2017 (N100 billion), 2018 (N100 billion), 2020 (N162.557 billion), and 2021 (N250 billion).

According to the statement, this year’s total sovereign sukuk issuance moved to N742.557 billion.

“The Debt Management Office (DMO) is pleased to inform the public of the successful conclusion of the issuance of N100 billion sovereign al ’ijarah sukuk. The offer for N100 billion opened on November 21, 2022, and was supported by wide public sensitisation to encourage subscription from diverse investors, particularly the retail investors,” the statement reads.

“The initial offer size of N100 billion was upsized to N130 billion due to the over 165 percent subscription level. The Sukuk was issued at a rental rate of 15.64 percent per annum. This brings the total sovereign sukuk issuance to N742.557 billion as at date.”

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CBN Limits Withdrawal To N100,000 Weekly

The Central Bank of Nigeria (CBN) on Tuesday slashed the cash withdrawal by an individual to N100,000 per week by an individual.

The apex bank also fixed N500,000 as the amount a company can withdraw in a week.

By this new policy, account holders can only withdraw a maximum of N100,000 weekly through Automated Teller Machine (ATM), subject to a maximum of N20,000 daily withdrawal.

Under the new policy, which is to take effect from January 9, 2023, the maximum cash withdrawal via Point of Sale (POS) shall also be N20,000 daily.

This was contained in a circular issued by the CBN on Tuesday, signed by director of banking supervision, Haruna Mustafa and addressed to deposit money banks and other financial institutions.

According to the circular, deposit money banks and other financial institutions are also mandated to ensure that over-the-counter cash withdrawals by individuals and corporate entities do not exceed N100,000 and N500,000, respectively, per week.

It further indicated that all cash withdrawals in excess of the stated limits will attract processing fees of 5 per cent and 10 per cent respectively.

The new policy also states that third party cheques in excess of N50,000 shall not be eligible for over the counter payment, while extant limits of N10,000,000 on clearing cheques subsist.

“Only denomination of N200 and below shall be loaded into the ATMs.

“In compelling circumstances not exceeding once a month, where cash withdrawals above the prescribed limits is required for legitimate purposes, such cash withdrawals shall not exceed N5,000,000 and N10,000,000 for individuals and corporate organisations respectively, and shall be subject to the references processing fees in (1) above, in addition to enhanced due diligence and further information requirements,” the circular stated.

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