March 15, 2013 6:21 pm

CGT reform should be Budget priority

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John Lee pleads for an investor-friendly Budget

Dear Mr Osborne

I’ve no doubt you are receiving advice and suggestions regarding the forthcoming Budget from many quarters, but I write with my twopenny worth, wearing the hat of a serious private investor rather than a parliamentarian.

My main focus is on capital gains tax, which over the years I have paid – fortunately or unfortunately – on many occasions. Indeed, I recently sent you quite a large cheque following the takeover by Greene King of Capital Pub Company, shares which I had held for less than two years.

However, this was an exceptional transaction. Normally I am very much a long-term investor. Having lived with varying CGT rates and regimes over the years I am now firmly of the view that the tax system should differentiate clearly between short- and long-term gains. In short: bring back indexation!

I would suggest “short” as being within say two years, with gains taxed at an individual’s top rate. Anything longer could be taxed at reduced rates – down to perhaps 10 per cent or less for assets held over 10 years. This approach would, I believe, be far more sensible than the flat rate of 28 per cent for top-rate taxpayers and would also probably result in greater receipts for the Treasury. It would certainly have resulted in me sending you an even larger cheque in respect of Capital Pub Co.

For the individual investor, CGT is normally discretionary, in that in most cases we choose whether or not to make a sale knowing whether it will generate a liability or not. As few investors wish to part with 28 per cent of a gain over and above their CGT allowance, they sit on holdings pregnant with profit. Portfolios ossify, with everyone – not least HMRC – losing out.

In answer to a written question that I asked in the House of Lords recently, treasury minister Lord Deighton forecast capital gains tax receipts of £3.7bn for 2012-13, £4.6bn for 2013-14, and £5.4bn for 2014-15. It will be interesting to see whether these amounts are realised. I have my doubts.

While I’m on the subject, it would be much appreciated if any unused CGT allowance in one year could be carried forward to be set against profits in future years. This would discourage the artificial “year end” taking of profits purely to utilise the annual CGT allowance.

John Lee
Spare a thought for dear old National Savings & Investments. Its savings rates are hardly market-leading

- John Lee

There are some other changes which would be welcomed by investors. No doubt you’re aware of my views regarding allowing shares quoted on the Alternative Investment Market to be eligible for individual savings accounts (Isas). As one who has argued for this, I welcomed the announcement in the autumn statement that the Treasury was consulting on its merits. I’m pleased to see that consultation has now begun - and that you are not proposing the inheritance tax relief which encourages Aim share investment be removed as a quid-pro-quo for allowing Aim shares to be held within Isas.

A number of parents and stockbrokers I have talked to feel strongly that they should be allowed to roll a Child Trust Fund into a Junior Isa. This would save costs, expand product choice, and make family administration much easier. I fully agree.

Finally, spare a thought for dear old National Savings & Investments. Set up when Lord Palmerston was prime minister, it has helped finance dozens of governments and still provides a secure home for many people’s savings. Yet its savings rates are hardly market-leading, and the index-linked savings certificates, among the best protection available against the ravages of inflation, are no longer available. I would urge you to set a sensible 2013/14 net financing target for NS&I, so that it can once again compete effectively in the savings market.

With kind regards,

Lord Lee of Trafford DL FCA

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