Briefing

CGT – gains and losses in 2010-11

Capital gains tax has been in force for 45 years. Practitioners who have been involved with the tax throughout that period may have a strong sense of ‘what goes round comes round’. When the tax was first introduced in 1965 it was charged at the rate of 30%. The tax was to be charged on gains which would be computed on a purely arithmetic basis, with no allowance for the effects of inflation. Nor was any regard had to the length of time for which an asset had been held, though short term gains would be subject to income tax. Subsequently, the rules were changed. Indexation allowance came and went. Taper relief came and went. The rate of tax was increased, when CGT was charged at income tax rates, on gains which were calculated with the benefit of indexation allowance, and/or taper relief. Then the rate of tax was reduced to 18%, and indexation allowance and taper relief were abolished. Now, we are almost back to 1965, with tax charged at the rate of 28% (rather than 30%) on inflationary gains, and with no mitigation of the burden, however long the asset has been held.