§ I now turn to a subject on which there has already been a considerable amount of public discussion. I have stated on several occasions my objections to a 979 capital gains tax. The most important one is that such a tax would militate against saving, genuine investment and economic growth. I have not, therefore, come here today to propose a capital gains tax, but to suggest that what may loosely be called speculative gains should be subject to tax.
§ While the main function of any system of taxation must be to bring in revenue, it must also be designed to produce a feeling of broad equity of treatment between taxpayers. At present, it is pretty widely felt to be inequitable that those who supplement their incomes by speculative gains should escape tax on those gains. I do not think that they should continue to do so; and I tell the Committee frankly that it is on this account, and not mainly for yield, that I put forward this proposal.
§ Certain types of quick gains secured by those not engaging in such operations as a business, are under the present law treated as capital receipts. Although ordinary people find it difficult to distinguish them from income, and they may often be used as income, they are not taxed. Those engaged in certain types of profit-seeking transactions now escape tax altogether—for example, the man who buys stocks and shares not to invest but in the hope of a quick profit, and the man who buys land in the hope of a quick speculative profit through a sale to a genuine developer.
§ Those who make a business of such transactions are taxed already as traders. Those to whom the new arrangements will apply are those of whom it cannot be established that they are carrying on a business. In my view, however, it is wrong that such people should escape taxation on such activities.
§ The problem is not a new one. The 1920 Royal Commission advocated action: the Radcliffe Commission said that it needed consideration. I have said repeatedly that I intended to tackle it. I propose to bring such profits within the existing charge under Schedule D of Income Tax by way of a new Case VII.
§ I have examined various ways of doing this and have come to the conclusion that the appropriate method is by a time test. What I propose is that if assets are acquired and disposed of within a stated period of time—and the 980 period will differ for different kinds of asset—any gain will be taxable under the new Case VII. The periods fixed will be such that the reasonable inference can be drawn that in general the transactions were of an income-seeking nature. What I am asking the Committee to do is to bring within Schedule D transactions which, some say—wrongly, I am advised—are already within the law.
§ I wish at this stage to make one other point. There have been all sorts of conjectures—speculation of another sort—about my intentions. The proposals which I shall put before the Committee have been drafted on the basis of instructions given last autumn, but their embodiment in legislation has involved consideration of many important points of detail and has required very careful drafting. There has been no change on any point of principle since my original instructions.
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cc980-3
- GENERAL CHARGE ON CERTAIN SHORT-TERM GAINS 1,095 words c983
- SALES OF SHARES IN LAND-HOLDING COMPANIES 134 words c983
- YIELD 88 words c984
- DEALINGS IN PROPERTY 121 words