§ 3.7 p.m.
§ Lord Monson asked Her Majesty's Government:
§ Whether they will reconsider their intention to disallow for capital gains tax purposes the indexation allowances accumulated up to March 1990 attaching to units or shares in trusts specialising in giltedged and other fixed interest securities, in view of the retrospective implications of their proposal.
The Paymaster General (The Earl of Caithness)My Lords, no. I should make it clear that the proposed change is not retrospective. It applies only to disposals on or after Budget day.
§ Lord MonsonMy Lords, I thank the noble Earl for that predictably disappointing reply. I take this opportunity to declare a very minor interest in the matter. Is he aware that the Government's proposals are indeed retrospective? Indexation is added to the original purchase price on a monthbymonth basis. Therefore, under these proposals, an investor could lose up to 96 months of accumulated indexation at a stroke. Moreover, the proposals are doubly retrospective in that they apply from the morning or early afternoon of 20th March, before the Chancellor made his speech. Is the Minister aware that when, in 1986, giltedged stocks were exempted from capital gains tax, 365 days' notice was given for investors to arrange matters to their maximum advantage by realising losses and deferring the realisation of gains? In this instance, is the Minister further aware that not even 365 seconds' notice was given?
The Earl of CaithnessMy Lords, capital gains tax changes, whether increasing or reducing liabilities, normally apply to disposals on or after the date on which they come into force.
Lord Bruce of DoningtonMy Lords, perhaps the noble Earl will elaborate a little. Will he inform the House of the rationale behind the original decision?
The Earl of CaithnessMy Lords, yes indeed. The purpose of the change is simply to close a loophole through which capital gains tax losses could be artificially created. I am sure that that is a measure that your Lordships will welcome.
§ Lord MonsonMy Lords, is the noble Earl aware that someone who invested £10,000 in a perfectly respectable giltedged unit trust in March 1982, and who sold the units for £15,000 in June of this year, would have made a loss in real terms of £890? Nevertheless, that person may have to pay up to £2,000 in capital gains tax. In other words, tax of £2,000 would be payable on a loss. Does the noble Earl agree that, according to Mr. Nigel Lawson's own words, that goes totally against what he had been trying to achieve since he came to Parliament?
The Earl of CaithnessMy Lords, I know that the noble Lord will agree that if somebody had bought an investment in a unit trust that dealt in the way that specifically relates to this Question, and invested £1 million at par and sold that investment for £1 million a year later, due to indexation that investor would have a theoretical loss of £100,000 to set off against other capital gains tax. That is why we are closing the loophole.
§ Lord DiamondMy Lords, am I correct in my understanding that, as a result of the new arrangements for separate assessment of husband and wife, those of us who are fortunate enough and rich enough to have wives who as well as ourselves have large investments on which they make capital gains will have double the capital gains tax relief that previously existed?