Before the Government commits itself irrevocably to two kinds of capital gains tax — one for investment gains and another for gains achieved by building up a business, they should take a long, hard look at the volumes upon volumes of Tolley's tax guides and see how past legislators have struggled to define business use.
What they would see is that the effort runs over hundreds of pages. Anything which seeks to define what is and what is not business, very quickly becomes hideously complex.
Such complexity is no way to design a tax system. In fact there would be nothing worse.
The distinction Government ought to make surely is between gains achieved very quickly and gains that are the result of years of work.
If the political decision is that gains made by a hedge fund or stock market speculator in a week should be more heavily taxed than gains made by a businessman after 10 years — which many would agree with — then the obvious solution is to apply taper relief, meaning that the rate of tax declines the longer the asset has been held.
Such a tax would have the merit of being seen as simple, easy to calculate and fair. The proposals as currently floated fail on all three counts.
