I find it difficult to get as worked up about Alastair Darling’s capital gains tax (CGT) changes as many others seem to – and I certainly don’t expect enterprise and business start-ups to come to a shuddering halt as doom-mongers imply!
Over the years, I have usually ended up paying CGT annually. In my early days when I was dealing more frequently and trying to build up my capital, I would take the 40 per cent tax on the chin and move on. But as my resources grew, and as I learnt the wisdom of holding investments for the longer term, I took increasing advantage of the Pep/Isa and Aim reliefs.
So, in preparation for this article, I have looked at my holdings numerically. Of my 44 stocks, nearly half (19 to be precise) are on Aim, including one Plus market holding. Of the 19, 10 are in companies that were listed on the main market but by dint of a shareholders’ vote, moved across to Aim.
I have always found this to be the most extraordinary taxation anomaly. I can well understand tax reliefs to encourage new business start-ups, but to allow old established plcs such as Christie Group, Nichols, FW Thorpe and, as I write, Park Group to join the Aim gravy train struck me as bizarre. I am always amused when commentators describe Aim as risky, when so many of my Aim stocks are among the most solid and dependable one could find!
Parallel to this, I have been a big fan of Peps and Isas and have faithfully tried to invest the maximum allowable each year. With good stock-picking, I have been able to build up a significant “tax free” pot, although it is all liable to inheritance tax – one can’t have everything! One minor irritation has been the understandable exclusion of Aim stocks from Peps and Isas. So when a plc has moved from the main market to Aim, I have frequently had to sell it out of my Peps and Isas and buy it back for my main portfolio.
Another benefit of the new CGT regime is greater simplicity. CGT calculations had become a nightmare. So the proposed 18 per cent flat rate is to be welcomed – at least from an administrative viewpoint.
In absolute terms, few can really argue that this rate is unreasonable in itself – the nation has to raise revenue from somewhere, and to be left with 82 per cent of a stock market profit is hardly onerous – although an effective increase from 10 per cent to 18 per cent naturally brings some bleating.
I would surprised if the chancellor backs down on the new rate or on the abolition of taper relief. No serious politician is going to cave in to pressure so early in their tenure, But we could see some modest tweaking of his proposals – perhaps benefiting the creation of new businesses.
To conclude, from my personal investing standpoint there are pluses and minuses in Darling’s proposals. Aim has become marginally less attractive, but my larger main market portfolio does see a CGT rate reduction. Nothing has changed fundamentally, though – it’s still all about commonsense, stock selection and above all, patience.