The Indexation of Capital Gains

Extract

1982 saw the introduction of a new dimension in financial planning both for individuals and for institutional investors; namely the indexation of capital gains. In his Budget speech in the House of Commons on 9 March 1982, the Chancellor of the Exchequer, Sir Geoffrey Howe, spoke as follows:

I propose that as from this April, gains will in principle be calculated after taking account of inflation which occurs after that date. No relief will however be given in respect of the first year of ownership …

Because we have not found it possible to extend the new scheme to cover past gains, I propose also that the exempt slice should be increased to £5,000. That is the best solution to the problem of the past and will simplify administration both for the taxpayer and the Revenue. For the future, I intend that this threshold should be statutorily indexed.

There will be no revenue cost in the coming year. In 1983–84 the cost of these two measures will be £55m.

But this ought not to be looked at as a measure of the cost to the Exchequer. It is rather a measure of the tax that ought never to have been levied in the first place. This change is no more than simple justice, which should be welcomed on all sides of the House.