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
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.