19th August 2008
APCIMS today tells Governmenet to simplify Capital Gains Tax rules in pre-budget submission
In a submission to the Treasury’s pre-budget report the Association of Private Client Investment Managers and Stockbrokers is calling on the Government to build on their simplification of Capital Gains Tax (CGT) in order to stop penalising long term share ownership.
APCIMS is calling on the Government to move the base date and cost value for securities held prior to 1998 for the computation of Capital Gains Tax.
Indexation allowance used to apply to assets that were acquired before April 1998. In some circumstances this significantly reduced the gain arising on a disposal by taking inflationary increases into account.
The changes in the 2008 Finance Bill simplified Capital Gains Tax by ending taper relief and indexation allowance and introducing a new single rate of 18 per cent. Shares purchased between March 1982 and April 1998 no longer benefit from the indexation allowance (for which there was a rate for each month in that period). As a result shareholders who have held shares for a long time are being unfairly penalised.
The abolition of any accrued RPI indexation allowance in the 2008 Finance Act has retrospectively made purely inflationary gains between 1982 and 1998 liable to CGT. These “gains” (illusory in real terms) were previously not taxed under any of the various CGT regimes operating during the past 25 years.
In order to address this and in keeping with the Government’s CGT simplification agenda, APCIMS is calling on the Government to introduce a further reform to move the base date from when gains are computed from 1982 to the value of the shares in March 1998. This would allow long term investors to uplift their cost base, some of which is purely inflationary gains. It would also overcome the problem of how far back a client’s records need to be kept and the various CGT identification rules that were in place in the first half of the 1980s.
David Bennett CEO of ACPIMS said:
“Changes to the CGT to move the base date from 1982 to 1998 would be a major further simplification which would be welcomed by both the industry and investors. This change would also be relatively small in terms of revenue loss to the Government. Importantly it would show that the Government is not penalising long term share holders but is recognising the importance of this long term investment.”
These calls come as part of a set of targeted measures that will help encourage individuals to save and invest for their long term financial futures. APCIMS believes such measures will increase economic stability. At the same time there are a number of tax simplification measures that will help those firms who act on behalf of individual investors.
The main changes that APCIMS believes the Government should consider are as follows:
- Reduce the rate of Stamp Duty/SDRT on chargeable securities to 0.25 per cent;
- Abolish the rule that requires an intermediary when acting in a principal capacity to treat commission as part of the consideration on which SDRT is charged
- For holdings held prior to 1998, update the acquisition date to this date and update cost to that value at this date for computation of Capital Gains Tax to 1998, as happened as at 1982;
- Clarification in respect of uninvested cash in a Stocks & Shares ISA;
- Review the requirement to undertake Quarter-up Valuations under existing full rules;
- Incentives to encourage those on lower incomes to invest in pension schemes; and
- Relaxation to the rules on non-domiciles relating to UK situs assets
- ENDS -
Notes to editors:
APCIMS
APCIMS is the trade association of more than 220 firms who, on more than 400 sites across the UK and Ireland, deal in stocks and shares for private investors. Together our aim is to ensure that the regulatory, tax and other changes across Europe bring real benefits to the investment community.
More than 12 million people in the UK currently invest directly in stocks and shares to secure their financial futures.
Indexation allowance – changes to CGT
Indexation allowance was introduced to reduce the taxable gain on the sale of an investment bought between 31st March 1982 and 5th April 1998. This was achieved by increasing the base cost (the total amount originally paid for the investment including all charges) in line with inflation over the holding period.
The changes to Capital Gains Tax in the 2008 Finance Bill included not only the ending of taper relief and a new single rate of 18 per cent but the removal of indexation allowance.
Therefore shares purchased between March 1982 and April 1998 no longer benefit from the indexation allowance (for which there was a rate for each month in that period). An example of how it was calculated is set out below:
2000 shares in ABC plc were purchased in September 1986 at a base cost of £3,000
Those shares were sold in April 1999 for £6,500.
Before indexation the taxable gain was £3,500
The indexation allowance for September 1986 was 0.654
The base cost increase was £3,000 x 0.654 = £1,962 which is added to the original base cost equalling £4,962
The new taxable gain was £6,500 - £4,962 = £1,538
Therefore you only paid capital gains tax on £1,538 rather than £3,500
Simplification is vital. With this measure there is only one date – March 1998 from which the value of any shares purchased prior to that date needs to be ascertained to calculate the CGT charge in the event of the investor selling those particular shares.
The indexation allowance was calculated by multiplying the cost of the asset, any acquisition costs, and any improvement costs, by the increase in the RPI from the month in which the expenditure was incurred to April 1998. (For sales before April 1998, the increase in the RPI up to the month of sale was used.) If expenditure was incurred at different times, the indexation allowance is calculated separately on each item of expenditure.
Indexation allowance table
The following table shows the retail price indexation allowance figures from 1982 to 1998.
RPI |
Jan |
Feb |
Mar |
Apr |
May |
Jun |
Jul |
Aug |
Sep |
Oct |
Nov |
Dec |
1982 |
|
|
79.4 |
81.0 |
81.6 |
81.9 |
81.9 |
81.9 |
81.9 |
82.3 |
82.7 |
82.5 |
1983 |
82.6 |
83.0 |
83.1 |
84.3 |
84.6 |
84.8 |
85.3 |
85.7 |
86.1 |
86.4 |
86.7 |
86.9 |
1984 |
86.8 |
87.2 |
87.5 |
88.6 |
89.0 |
89.2 |
89.1 |
89.9 |
90.1 |
90.7 |
91.0 |
90.9 |
1985 |
91.2 |
91.9 |
92.8 |
94.8 |
95.2 |
95.4 |
95.2 |
95.5 |
95.4 |
95.6 |
95.9 |
96.0 |
1986 |
96.2 |
96.6 |
96.7 |
97.7 |
97.8 |
97.8 |
97.5 |
97.8 |
98.3 |
98.5 |
99.3 |
99.6 |
1987 |
100.0 |
100.4 |
100.6 |
101.8 |
101.9 |
101.9 |
101.8 |
102.1 |
102.4 |
102.9 |
103.4 |
103.3 |
1988 |
103.3 |
103.7 |
104.1 |
105.8 |
106.2 |
106.6 |
106.7 |
107.9 |
108.4 |
109.5 |
110.0 |
110.3 |
1989 |
111.0 |
111.8 |
112.3 |
114.3 |
115.0 |
115.4 |
115.5 |
115.8 |
116.6 |
117.5 |
118.5 |
118.8 |
1990 |
119.5 |
120.2 |
121.4 |
125.1 |
126.2 |
126.7 |
126.8 |
128.1 |
129.3 |
130.3 |
130.0 |
129.9 |
1991 |
130.2 |
130.9 |
131.4 |
133.1 |
133.5 |
134.1 |
133.8 |
134.1 |
134.6 |
135.1 |
135.6 |
135.7 |
1992 |
135.6 |
136.3 |
136.7 |
138.8 |
139.3 |
139.3 |
138.8 |
138.9 |
139.4 |
139.9 |
139.7 |
139.2 |
1993 |
137.9 |
138.8 |
139.3 |
140.6 |
141.1 |
141.0 |
140.7 |
141.3 |
141.9 |
141.8 |
141.6 |
141.9 |
1994 |
141.3 |
142.1 |
142.5 |
144.2 |
144.7 |
144.7 |
144.0 |
144.7 |
145.0 |
145.2 |
145.3 |
146.0 |
1995 |
146.0 |
146.9 |
147.5 |
149.0 |
149.6 |
149.8 |
149.1 |
149.9 |
150.6 |
149.8 |
149.8 |
150.7 |
1996 |
150.2 |
150.9 |
151.5 |
152.6 |
152.9 |
153.0 |
152.4 |
153.1 |
153.8 |
153.8 |
153.9 |
154.4 |
1997 |
154.4 |
155.0 |
155.4 |
156.3 |
156.9 |
157.5 |
157.5 |
158.5 |
159.3 |
159.5 |
159.6 |
160.0 |
1998 |
159.5 |
160.3 |
160.8 |
162.6 |
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For further information please call:
Dirk Paterson, Head of Communications, APCIMS
on 020 7247 7080
Mobile: 07507 855 428
Email: dirkp@apcims.co.uk