ABSTRACT
This chapter focuses on reforms to capital income taxation. But tax reform has gone much wider than taxes on capital income to cover, for example, the improvement of incentives and the reward of effort in labour markets. The chapter deals with a brief description of the basic UK approach to taxing capital income, concentrating on the broad principles rather than the fine details. It outlines main tax changes which have been implemented. The chapter examines the common themes running through all tax changes. It summarises the objectives and comments on some of the effects on the economy. The chapter addresses the lessons which can be drawn from the UK experience, in the light of what economic theory tells about optimal tax systems, and of the need to cope with the second-best situations of the real world. For income and capital gains originating in the UK, and passing to an individual UK resident, the basic principles of taxation are simple.
