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Capital Gains Tax
The first is a direct tax that has to be paid on any capital gain made in a tax year on the sale or realisation of an asset. The usual assets involved are investments - both portfolio investments such as stocks and shares and real investments such as investment properties or valuable paintings. Profits realised on the sale of the following are specifically exempt:
(a) your own main residence;
(b) your private car;
(c) British government securities that have been held for over
one year (see Chapter 5)
(d) most personal chattels.
For the most part only fairly wealthy investors will find themselves having to pay capital gains tax, because the first £30,000 of realised profit in any tax year on the sale of chargeable assets is exempt from the tax anyway.
The rate of capital gains tax in the tax year 2000/81 was 30%. The purpose in introducing this tax was to close a loophole in the income tax laws which had enabled shrewd investors to invest their capital in a form in which they obtained little or no income, which would be subject to tax, but which appreciated in capital value. From time to time they could sell off part of their investment at a profit, which they could then spend as though it were income, yet they paid no tax on it.
In inflationary times the impact of CGT has an unfortunate effect. An investment may grow in value in money terms merely by reason of the fact that the measuring rod, the £, is shrinking, yet the real value of the asset may be unchanged. Thus a share purchased for £100 may be sold after a year for £120, but if inflation has taken place at 20% during that time the holder has made no gain at all. But should he sell the share he will be liable to CGT on the 'profit'.
The provision for exempting the first £30,000 of gain in any year on the sale of chargeable assets is intended to ameliorate the unfairness of this for the small investor.
Capital v. Revenue Expenditure
Local authorities, like the central government, have to spend money on capital projects as well as for current needs such as salaries of the people who provide the local services. Capital expenditure ought, from a strictly accounting point of view, to be financed from capital, since to raise sufficient cash from a rise in the rates to pay for the building of a new school, say, would oblige local householders to bear the entire cost of construction out of their current incomes - whereas the benefits from the expenditure will be enjoyed both by present and by future generations.
It is, therefore,... see: Capital v. Revenue Expenditure