In a concession last week, the Government announced that the controversial new regime would only come into force when new legislation is introduced, following a wave of protests that this would unfairly penalise existing holders of gilts. The Revenue continues to insist however that the two- week consultation period is long enough, despite widespread protests that the period is too short to allow serious discussion of the implications.
Unit trust and insurance companies, led by Save & Prosper, have told the Government and the Revenue that the new proposals could undermine a range of financial products, including Guaranteed Income Bonds, which are dependent on the continuation of the current tax regime. Private investors have also protested about the threat of the new tax regime being applied to them.
The Revenue has brushed off protests that the consultation period is too short, however, saying that it is important to push ahead quickly to avoid any unnecessary uncertainty. Friday was the last day for comments on the Revenue's proposals.
The Government makes its final pronouncement in July. Under the new rules, capital gains on gilts will be taxed for the first time, but as income. Previously the only tax payable was income tax on the coupon (the twice-yearly payment of interest). However, losses on gilts will also be offsetable against tax.
Lobbyists representing a broad spectrum of private clients fear the Revenue aims to brush their objections under the carpet, through the minimum of consultation. They also fear the proposals favour City interests and the big investment institutions at the expense of private clients.
"It suits the City to have a change, and it doesn't matter to them about the consequences for private investors," says Michael Bryant, a director of Rathbone Brothers, a financial adviser with about pounds 1bn of funds under management. "Kenneth Clarke wants these changes introduced irrespective of consultation."
Mr Bryant has written to the minister at the Treasury implementing the changes, Sir George Young, complaining of the short timetable for this "fundamental change." He wrote: "The proposals have far-reaching consequences to the system of taxation of private individuals, and consequently deserve a longer consultation period, and preferably a measure of consensus between the needs and objectives of financial institutions and private individuals."
The Association of Investment Trust Companies is also dissatisfied with the proposed regime, especially its effect on zero-dividend preference shares. These have built up a strong following among private investors since they were launched in the late 1980s.
Fiona Munro, at the AITC said: "There is a real possibility that holders of zero-dividend preference shares will suffer double taxation, firstly on the gilts held by the collective investment itself, and then on their capital gain."
She pointed out that prudent investors bought them precisely for the advantages they offer for planning ahead on school fees and other recurring lump-sum payments. "Their prudence is being unfairly penalised if they are taxed for capital gains," she said.Reuse content