Government urged to freeze capital gains tax

The influential Commons Treasury committee of MPs said the Treasury should be given time to assesswhether complex changes have had the effect he hoped.

The plea follows changes in the 1998 budget, which introduced acomplicated system of tapers reducing the proportion of gainchargeable if the asset was held for more than a year.

The maximum reduction to 25% for business assets and 60% fornon-business assets was achieved after ten years.

Higher rate taxpayers would pay a 10% rate on gains on businessassets and a 24% rate on others after they had been held for 10years.

This year the tapering process is speeded up, with the minimumrate for business assets reached after four years, with theminimum limits for shareholders removed for unquoted companiesand for employee shareholdings and reduced top 5% for non-employee shareholdings in quoted companies.

The committee was told by tax adviser Edward Troup that theresult is a desire by everyone to achieve 10% rates – withpeople spending more time chasing that than actually earning themoney.

He also warned that the difference between the 10% rate andhigher rate income tax might result in avoidance.

The MPs asked the Treasury if there had been an evaluation ofthe 1998 changes, and were told it was too early for realevidence to emerge and that officials looked to experience inthe US where lower CGT rates had been a significant contributoryfactor to the growth in entrepreneurial private equity.

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