Private Investor: Capital gains and the strange, illogical ways of Britain's tax system

I sold my small holding of shares in Savills last week. I bought them in 1997 at 127p and managed to get 425p for them last week. Quite a rise, naturally enough mirroring Savills very good recent results and the recent boom in posh residential property, in which Savills specialises.

But Savills, or FPD Savills as it is sometimes known, is more than just an upmarket British estate agent. It also operates in Europe, Asia Pacific, and Africa. Recently it announced plans to become more involved in managing the wealth of its well-heeled clients. Last year it had a 73 per cent increase in profits and was able to hand out huge bonuses to the staff who contributed to that success, a healthy enough move. Sums of £1m have been mentioned for the most senior staff. Some of them might even be able to afford a flat in London with that sort of cash. Good luck to them, I say. Estate agents are a breed almost as despised as journalists, and so I have sympathy for them. They are, after all, only taking their slice of the mad housing bubble, and no one who would do the same should speak ill of them.

So if Savills is such a healthy company and its shares have been such a good investment, why sell? The answer is simple: tax. When you have as few profitable investments as I do you ought to try to shelter as much of your investment gains as possible and I am keen to use up this year's Capital Gains Tax allowance. Sounds grand, doesn't it? But just like paying the higher rate of tax you don't have to be a plutocrat nowadays to start paying "posh people's taxes".

If you've held some of the better privatisation or demutualisation shares, for example, you might well find yourself liable if you sold them all in one tax year and made more than £7,900 profit (£8,200 from 6 April). With some of the building society demutualisations the Inland Revenue counts the entire sum as pure profit, so that is particularly true of those shares. Be sure to check their tax status.

In the old days investors could go in for what they called a "bed and breakfast" arrangement whereby they sold the shares one day and bought them back the next. This loophole was closed in 1998 and has been replaced with complicated rules that I really can't be bothered with, except to know that I can't simply buy shares in the same company any time soon. So, if I want to stay invested in this sort of sector, I have to buy shares in a completely different company that does the same sort of thing. That is easier said than done, as I cannot readily see another company that really mirrors Savills' excellent mix of businesses very precisely, so I shall have to remain uninvested for the time being and use the money to keep the overdraft down.

All of which says stark things about the arbitrary nature of the British tax system. I didn't work in order to make my capital gain on those shares, so perhaps the money I make from that part of my life (if I do make money there) should be treated differently from the way my salary (for which I work jolly hard) is taxed. Similar arguments might be made about dividends against wages. Such distinctions are interesting. Way back in the 1970s they were crystallised in officialdom by the expressions "earned" and "unearned" income, as if risking your capital to help enterprise was in some sense not earned. Yet, whatever arguments you might want to make about that, I fail to see why a vast capital gain someone makes on a main home sale is left entirely untaxed whilst fairly modest gains on shares, say, or antiques, gold coins, used baked bean tins, second homes or anything else you care to mention is taxed at the highest marginal rate.

Which brings me, in turn, to the property market and what Mr Brown proposes to do about it. For what it's worth I think that the Chancellor is edging towards the right answer: build more houses, and in particular social housing, to increase supply. This is very long term and won't affect the likes of Savills soon, if at all. But it just reminds me that the housing market is a little bit toppy now. Perhaps selling my shares in an estate agent is not all bad.

s.o'grady@independent.co.uk

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