CGT hike would hit an ‘extra one million investors’

May 19, 2010 | Blog

Proposals by the new Government to increase capital gains tax (CGT) in line with income tax rates could mean that more than a million extra people will be liable to pay the tax, according to some financial experts.

A document published by the Conservative Liberal Democrat coalition signals that the incoming Chancellor, George Osborne, will look to increase CGT for ‘non-business gains’ such as buy-to-let properties. If implemented, the measure would be used to fund a ‘substantial increase’ in the personal allowance.

Charging CGT at rates similar to those levied on income could see the current rate of 18% increased to 40% or even 50%, although the document states that ‘generous exemptions’ will apply for ‘entrepreneurial activities’.

Yet many commentators have claimed that the changes could still double the CGT bill for hundreds of thousands of investors.

Speculation over a possible hike has also prompted fears that investors and entrepreneurs will rush to dispose of assets to avoid being hit by the predicted increase, while some economists believe that a rise in CGT would penalise companies financing themselves through equity rather than debt.

Philip Booth, at the Institute of Economic Affairs said: ‘The doubling of capital gains tax would be a huge mistake for Britain.’

‘Surely we have learned from the financial crash that we should not be artificially encouraging companies to take on more debt.’

Earlier this week it was announced that the Chancellor will deliver the emergency Budget on 22 June. It is unclear whether the proposed tax changes will be implemented immediately after the Budget or will be deferred to the start of the new tax year.

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