Tax

[Grumble]

Many really wealthy people have a portion at least of their income paid as share options. Why aren’t these taxed as income at the current market value when paid? If they go up in value and are cashed in then the difference can be taxed, and if they go down in value when they’re cashed in then there can be a rebate.

[basementer]

Because they only realise a gain or loss at the point when they sell the shares, not when they exercise an option to buy. If the share goes down in price the option is not "cashed in", it's just not used.

[lpm]

Capital gains tax should be aligned with income tax.

It won't be, because tax isn't about equity or efficiency.

[basementer]

Capital gains tax should be aligned with income tax.

It won't be, because tax isn't about equity or efficiency.

I agree with you on both points.

[WFJ]

Capital gains tax should be aligned with income tax.

It won't be, because tax isn't about equity or efficiency.

I agree with you on both points.

And inheritance and "gifts". No seven-year rule. It's all income.

[Bird on a Fire]

Capital gains tax should be aligned with income tax.

It won't be, because tax isn't about equity or efficiency.

I agree with you on both points.

And inheritance and "gifts". No seven-year rule. It's all income.

Totes.

And taxing wealth too would help to offset the accumulation of inequality.

The rules are written by the wealthy, though, so it'll take some serious people power to effect change towards a more just system.

[Grumble]

Capital gains tax should be aligned with income tax.

It won't be, because tax isn't about equity or efficiency.

I agree with you on both points.

And inheritance and "gifts". No seven-year rule. It's all income.

How is trust fund income taxed?

[IvanV]

Many really wealthy people have a portion at least of their income paid as share options. Why aren’t these taxed as income at the current market value when paid? If they go up in value and are cashed in then the difference can be taxed, and if they go down in value when they’re cashed in then there can be a rebate.

When I worked for an American company, and received a portion of my income in share options, it was taxed as income at the current market value when paid. Those options were for everyone, not just senior employees: the handy-person, the receptionist, etc.

We were aware that more favourable tax treatments were available, had the scheme been designed to take advantage. But they weren't going to design the scheme for the tax convenience of their British employees, who were a minority in a multi-national, mainly American, company.

Taxing it as income at the current market value proved extremely nasty for some of the employees the year after I left. The morning after the share options for that year crystallised - and for some people that could have been 5 years' worth - the prosecutor of New York State marched in on the head office, because they had been Up To No Good. The share price fell 2/3 overnight. So the employees whose options crystallised that day had to pay tax on the value at the price before the crash. Fair enough if they were in on the misdeeds. But the great majority of the employees were nothing to do with it and could not have suspected. I sometimes wonder if the prosecutor chose that day for his action to have that effect.

Taxing capital gains on volatile instruments is tricky. If you require people to mark to market and pay tax on that, then is the taxman supposed to give a refund a year later when the shares go down? It really wouldn't be fair you were taxed years the shares went up, with no allowance for years they go down.

They have made some disimprovements over the years to make the tax less fair and efficient, because the chancellor was greedy. First, there is an issue over your annual capital gains tax allowance. Ideally you would like to use your CGT allowance each year. But if you are just holding shares and not trading them, then you don't use it. Previously people would "bed and breakfast" some shares - sell and buy-back - to crystallise some capital gains for tax purposes to use up the allowance. But they made that illegal. I don't consider B&B an abuse or tax evasion. It was just chancellor's greed. It doesn't make the system fairer or remove an abuse. The allowance is paltry for the very rich, it is the small saver who is hurt by this dirty trick. Simlarly, you used to be able to adjust the value of your shares for inflation when computing capital gains tax, but they took that away. Again, that was chancellor's greed, and made the tax system less efficient. If they want to have a tax on capital holdings, they should have a tax on capital holdings - and then you'd exempt those with small holding and tax those with large holdings. But this sneakily taxes everyone, large and small, by taxing nominal inflation "gains", which aren't gains at all, it is just a capital holdings tax.