§ I propose that, with certain exceptions to which I shall refer in a moment, gains not now chargeable which result from the acquisition and disposal of stocks, shares, securities, land, including of course buildings, commodities and other property, or interests or rights in such assets, shall be made subject to tax if the disposal happens within a specified period from the date of acquisition.
§ I propose to exclude from this general charge certain types of property. First, I exclude movable property like pictures, personal belongings and motor cars, because I do not think that to bring these in would be worth the complications involved. A gain on the sale of the house owned and occupied by the seller will not be chargeable. If someone is fortunate enough to have more than one house, or more than one residence, it will be the proceeds of sale of the main residence which will escape charge. The charge will not apply to the sale of the fixed assets of a business, such as factory buildings and plant and machinery, if they are sold by a person who has actually been using them in a business carried on by him.
§ For interests in land the charge will apply if the period from acquisition to disposal is three years or less. For all 981 other chargeable property including stocks, shares and securities, the charge will apply if the period from acquisition to disposal is six months or less.
This difference in period conforms to the reality of the situation. "Short term" in relation to land is something quite different from "short term" in relation to stocks and shares. The charge will not apply if either the acquisition, or—in the case of "bear" transactions—the disposal, occurred before tonight. There will be no retrospection.
Broadly speaking, the gain to be charged will be calculated by deducting from the realised price the cost of acquisition, but allowance will be made for proper and relevant expenditure incurred by the seller.
The gains will be taxed as income in the ordinary way. If they arise to an individual they will be charged to Income Tax, and, where the individual's income is big enough, to Surtax also. I propose, in the case of a company, that they will be charged to Income Tax and Profits Tax. I propose that losses arising out of transactions which, if they had been profitable, would have given rise to a charge to tax, shall be allowed to be set off against chargeable short-term gains of the same tax year, or, if necessary, of subsequent years by carry forword. But losses of this kind will not be allowed to be set off against ordinary income.
The general charge will apply to gains from property at home or overseas, but persons not resident in the United Kingdom for Income Tax purposes will not be liable. There will be special rules to deal with gifts. If the giver and recipient fulfil certain conditions, there will be no liability to tax unless there is a disposal by the recipient within the governing period from the date of acquisition by the giver. With regard to property passing on death, I propose that no new charge shall arise. Sales by the personal representatives, or the beneficiaries, of property passing to them on a death will be disregarded for purposes of the new Case VII.
I propose also that charities, approved superannuation funds and approved 982 scientific research associations, which already enjoy exemption from Income Tax in respect of their investment income, shall be given corresponding exemption from any tax that might become chargeable on them under Case VII.
Provisions will be needed to deal with a number of special situations. I must ask the Commettee to await the Finance Bill for the fill details, but I think it right to refer to one or two specific matters. First, bonus issues, that is, where new shares are issued without cost to holders of existing shares in a company. The bonus issue of itself will not attract tax. If the shares constituting the bonus issue are subsequently sold, they will be regarded as having been acquired by the seller when the parent shares, in respect of which they are issued, were acquired.
Secondly, rights issues, that is, where existing holders of shares in a company are given the right to buy new shares or securities in virtue of their existing holding at a price which may well be below market value. I propose to treat existing shareholders as having acquired their rights at the date when they acquired the parent shares in virtue of Which the rights are issued. If bonus issues, or rights issues, or the shares in virtue of which they were issued are sold within six months from the date of acquisition of the original shares, a charge to tax will arise and special rules of computation will be provided. If, of course, a person buys rights in the open market, and sells them or the shares when taken up within six months, that will be a transaction of acquisition and disposal involving liability.
Thirdly, options. These involve a potential buyer and a potential seller. As regards a buyer of shares who acquires them through the exercise of a previous option, we shall treat him as acquiring the shares when he exercises the option. We shall treat the seller as having sold his shares on the date when he entered into a contract giving an option to somebody else to buy them.
I give these details of particular kinds of transaction by way of illustration, but I repeat the general principle so that all may be aware of it—that from 983 tomorrow transactions of the kind that I have described may involve a liability to tax.
I should add a word on the obtaining of information about gains liable to tax under Case VII. We shall rely primarily upon the ordinary Income Tax returns which will include a section for reporting chargeable gains under Case VII, but further powers will be needed to safeguard the Revenue against evasion. We shall not seek a power to obtain general returns of all transactions carried out by agents on behalf of clients. That would create an unmanageable mass of paper. But we shall propose that powers be given to the Inland Revenue to obtain from brokers, estate agents, banks and other persons who act for clients in chargeable transactions details of transactions carried out on behalf of named persons.