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17 November 2002

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Radical overhaul needed to end Capital Gains Tax quagmire

Radical changes are needed to simplify the complex regulations that control the calculation of capital gains tax, say members of the Institute of Directors in Cambridgeshire.

Currently, capital gains calculations are subject to up to five variable conditions that pose a serious challenge for many people to unravel. If they succeed in overcoming those obstacles, they then face a further mathematical nightmare to offset any gains against losses.

“Capital gains tax certainly needs simplifying and the government should take radical action to remedy this unacceptable situation,” said Alan Blake, treasurer of the Eastern Branch of the Institute of Directors.

“Intelligent and financially aware people struggle with the calculations needed to compute the gains even on simple transactions in modest share portfolios. An unknown proportion of people give up and put down the results of crude calculations which could result in them paying too much or too little tax.”

Under the present system different rules apply to capital gains calculations depending on whether assets were acquired before or after 1998 and whether they are classified as business or non-business assets. In some cases capital gains are subject to two separate calculations as a result of their status being changed from a non-business asset to the business category following re-classification dating from April 2000.

Once those calculations have been completed, people face a convoluted process of deducting any losses from their gains and then applying a ‘tapering’ factor based on how long they have owned the assets before discovering whether and how much capital gains tax they owe.

“The whole process is a real quagmire,” said Mr Blake. “It needs a radical overhaul, which is what Cambridgeshire IoD members are recommending.”

The IoD is suggesting that the present system is replaced by a more simple system, for example, the amount of capital gains tax payable on an asset would ‘taper off’ gradually over a period of, say, five years and would then be completely ignored for tax purposes.

“Doing this would mean that after 2003 taxpayers could forget the pre-1998 rules,” said Mr Blake.

A further suggestion for simplifying the rules would be to ‘re-base’ all assets by treating them as having been bought on 6 April 1998 and thereby avoiding the complex dual calculation requirement. “The government last ‘re-based’ assets in March 1982, 17 years after the introduction of capital gains tax, so another re-basing exercise is long overdue,” said Mr Blake.

September 2001




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