Clause 20.—(CAPITAL GAINS ACCRUING TO AN INDIVIDUAL: ALTERNATIVE CHARGE TO TAX.) (Hansard, 7 July 1965)

§ Mr. MacDermot
I beg to move Amendment No. 22, in page 16, line 12, to leave out from the beginning to "the" and to insert "(a) where".

§ Mr. Deputy-Speaker (Sir Samuel Storey)
It will be for the convenience of the Committee to consider at the same time Amendment No. 23, in the name of the right hon. Member for Bexley (Mr. Heath), in line 12, leave out from "equal" to end of line 14 and insert: , in the case of an individual not falling within the charge to surtax in the relevant year of assessment, to one-half of the amount on which he would have been chargeable to capital gains tax for that year under the last foregoing section and in every other case to two-thirds of the said amount".

§ Mr. MacDermot
Might we also consider at the same time, Mr. Deputy-Speaker, 1690 Government Amendment No. 24, in line 14, at end insert: does not exceed five thousand pounds, on a sum equal to one-half of that amount, and (b) where that amount exceeds five thousand pounds, on a sum equal to two thousand five hundred pounds, plus the excess of that amount ever five thousand pounds".

§ Mr. Deputy-Speaker
Yes.

§ Mr. MacDermot
The two Government Amendments deal with the same point. Clause 20 as it stands provides that if it is to the advantage of the individual he can claim the alternative rate of charge by having the gain added to the top slice of his income. The Government Amendments are the two that I referred to just now which will reduce the fraction of the gain if added to the individual's income for the purpose of the alternative basis of charge from two-thirds to a half, but they also provide that the half rate shall not apply to more than £5,000 of the gain. If in one year an individual realises more than £5,000 in gain, the excess is to be taxed pound for pound as the top slice of his income.
The consequence of this is that on the first £5,000 of his gains it will be to the individual's advantage to have the alternative basis provided, but the benefit which accrues in that way will rapidly be withdrawn on any excess of gains over £5,000 until he reaches a point at which overall it would be to his advantage instead to have his gains taxed at the flat rate of 30 per cent.
I said when we were discussing this question in Committee that we had considered the possibility of making one half of the gain taxable and providing a cutoff, but we envisaged then a tapering provision which would have been exceedingly complicated, and I rejected it for that reason. But the solution which we have now arrived at, and which I hope will commend itself to the House, is one which administratively will be much easier to work. I think it will achieve the object which we all want, which is designed to help the small man, and will ensure an appreciable reduction in the rate of charge for people who are not paying Income Tax at higher than the standard rate. In this way the solution is one which does not extend and carry right up the scale in a way that would have eroded the basis of the tax.
1691 The Amendment tabled by the Opposition proposes that for individuals who are not liable to Surtax the protection in Clause 20 of the Bill should be a half and that for individuals who are liable to Surtax the fraction should be two-thirds. I imagine that that was intended to be more favourable to the taxpayer, but I do not know. We shall hear, no doubt, whether hon. Members opposite had time to consider the Government Amendments at the time when they framed their Amendment. Perhaps I can just say at this stage that we take the view that the Government Amendments would, in fact, be more favourable to the taxpayer. I can let hon. Gentlemen opposite have some tables to illustrate the point if that would assist them, but perhaps they will accept it in general terms from me. Certainly the Government Amendments would be easier to operate.

§ Mr. Peter Walker
Of the many improvements which we on this side have been able to make to this Bill this is probably one of the most important. When, in Committee, we moved a somewhat similar Amendment to this, though I agree it had certain provisions which we ourselves have altered now in the Amendment we have put down, it was in opposition to the Government's attitude then that the major concession they were willing to give was that a person at the standard rate of Income Tax would have the rate reduced to 37½ per cent.
Due to very considerable pressures by us on this side, pointing out how very high and penal a rate of 30 per cent. would be, and the need for some concession to those with smaller incomes, the Government have taken this action, and we are pleased that they have, to reduce the rate to a person at the standard rate of Income Tax to something just over 20 per cent. I would point out that in comparison to what applies in other countries this is not a very generous concession. The rate in the United States is nearer to 11 per cent., and there the concessions are granted on what is already a lower rate of Capital Gains Tax.
However, this is certainly an important improvement, although it is one, I would point out, which creates an even wider gap between taxation upon the individual investing in life assurance funds, unit trust 1692 funds, investment trust funds, and that upon the individual investing directly into the market. Now we have a situation where, for example, the person saving through the medium of life assurance, because life funds will be taxed, will be taxed at the rate of 35 per cent., whereas a person at the standard rate of Income Tax will be taxed at the rate of 20 per cent. As far as unit trusts are concerned, the Clause which we so successfully moved at a late hour last night will go some way to narrow the gap, but I think that perhaps if we had fully recognised the effects of this Amendment we would have moved 20 per cent. in that Clause rather than the figure of 30.
However, we welcome this Amendment and are gratified that our hard debates in Committee, in which the Financial Secretary pointed out the administrative difficulties in doing this type of thing, are bearing fruit, and those administrative difficulties have disappeared, and that the Government have decided to give the concession we outlined in Committee.

§ Mr. MacDermot
I beg to move, Amendment No. 25, in page 17, line 31, to leave out from "D" to "the" in line 32 and to insert "(i) where".
This is purely consequential upon the Amendment we were just discussing.

§ Mr. MacDermot
I beg to move, Amendment No. 26, in page 17, line 34, after "section" to insert: does not exceed five thousand pounds, on a sum equal to one-half of that amount, and (ii) where that aggregate amount exceeds five thousand pounds, on a sum equal to two thousand five hundred pounds plus the excess of that aggregate amount over five thousand pounds. The same applies to this Amendment. I should, perhaps, have said in one sentence that these two Amendments substitute the more favourable rate we have just been discussing in the case where 1693 both husband and wife are chargeable on their gains.