§ The next possibility is an increase in the rate of Capital Gains Tax. This tax is making a material and growing contribution to the revenue. The yield this year is approximately £16 million as against £7 million last year. And for 1968–69 I estimate a yield of £45 million. There is therefore no question of the tax, overwhelmingly justified in equity, producing a negligible revenue in return for a great expenditure of administrative effort. Nevertheless I do not consider that it would now be appropriate to raise the rate of tax. It is in my view an essential feature of our long-term taxation arrangements. This requires a long-term view of the rate at which it should stand. This view was given by my predecessor two years ago, and I stand by what he said. Nor, by its nature, is it a tax suitable for a short-term and limited surcharge. This would produce all the distorting effects of a reluctance to realise during the period of the surcharge, with a possible fall in the immediate yield.298
§ There are however certain limited changes in the incidence of the tax which I propose. In making these proposals I have particularly in mind the need to simplify the tax wherever possible.
§ First I propose that the gains of individuals shall be exempt from tax if, after deducting losses, they do not exceed £50 for the year.
§ Secondly I propose to simplify the rules for calculating the Capital Gains Tax liability on sales of quoted shares and securities acquired before 6th April, 1965. For the future such shares and securities will no longer be "pooled" with similar assets acquired since 6th April, 1965, and in computing gains on them it will be necessary only to compare their acquisition cost with their value at 6th April, 1965. As a further measure of simplification taxpayers may elect once and for all to disregard the actual cost of their pre-1965 holdings of equity shares taken as a whole and to base their gain or loss solely on the 6th April. 1965, value; a similar election will be allowed for all their fixed interest securities.
§ Third, I propose to exempt entirely from Capital Gains Tax all chattels which rank as wasting assets, that is, chattels that have a predictable life of not more than 50 years. It follows that no relief will be given for losses on such chattels.
§ I hope that these changes will save both taxpayers—and their professional advisers—and the Inland Revenue a certain amount of effort at small cost to the revenue.
§ My fourth proposal, however, is for the partial withdrawal of an exemption. Gains on certain Government securities within what is known as the "neutral zone" are at present exempt from both the short-term and the long-term tax. When we introduced the exemption in 1965 we had in mind the genuine investor who had taken up the securities at a discount on the understanding that he would be repaid at par. But we find that the main benefit of the exemption for short-term gains is going to those who deliberately buy and sell within a period of months purely in order to get interest on the securities in tax-free form. I see no reason why this sort of gain should 299 be exempted and I propose, therefore, to withdraw the exemption so far as the short-term tax is concerned and to charge all persons, including companies, who buy and sell within a year. This will produce additional revenue of £2½ million a year. The exemption will, of course, continue as regards the long-term Capital Gains Tax.
§ There will also be a number of minor changes, in relation to both the short-term and the long-term tax, which I need not describe in detail.