§ The Chancellor of the Exchequer (Mr. James Callaghan)
I now turn to the problem of valuation. As the Committee is aware, the tax will be imposed only on gains realised after today. It will apply irrespective of the date when the underlying assets were acquired; but the gain to be charged will not exceed the difference between the disposal price and the value of the asset today. No one, however, will be charged on more than the actual gain he has realised on the asset. Correspondingly, relief for losses will be limited to the loss referable to the period after today, or to the actual loss realised if less.
There is no problem of valuation for quoted shares and securities whose market value can readily be ascertained and will be adopted. For other assets I do not propose that there should be an immediate valuation. Instead, my solution is that the taxable fraction of the total gain realised—that is, the part which accrues after today—shall be arrived at by a simple process of time apportionment.
Thus, if an asset was acquired on 6th April 1963, two years ago, for £10,000 and is disposed of on 6th April, 1966, for £16,000 the total gain will be £6,000 and the taxable part will be one-third of this, £2,000, because two-thirds of the period of ownership elapsed before the start of the tax today and one-third after today. Where an asset was acquired more than 20 years ago, however, the period of time between acquisition and disposal will be treated as the period between today and the date of disposal plus 20 years. I think that 20 years is far enough to look back for this purpose.
I hope that by this simple device we shall save a great deal of valuation work; but I should make it plain that in all cases which are prima facie subject to the time apportionment the taxpayer will 249 have an option to take the actual value of the asset today as the starting figure, instead of the value calculated by means of the formula.
I propose one other exception to the time apportionment formula besides quoted shares and securities. In the case of land which is suitable for development the time formula could produce an entirely wrong result, since it is characteristic of such land that its value does not normally appreciate at a uniform rate, but is liable to sudden upward jumps. In this type of case, therefore, valuation as at today will be required. This does not mean that the actual valuation must be carried out at once. The question will not actually arise until the property is disposed of.