Cameron Open To CGT Compromise

by Robert Lee, Tax-News.com, London

28 May 2010

UK Prime Minister David Cameron has promised to listen to concerns from within the Conservative Party regarding plans to increase the rate of capital gains tax (CGT) as the level of unrest among Tory MPs grows.

Speaking on the BBC's Today programme, Cameron did not rule proposals for taper relief, which would reduce the rate of capital gains tax due the longer an asset has been held before being sold. He also reiterated that there would be generous reliefs for business income in the new CGT system, due to be announced in next month's emergency budget.

"We will listen to the arguments," Cameron said. "The process is clear. There's a budget to come. That's when the decision will be made."

"Do I understand the importance of encouraging entrepreneurship in our country? Of course I do," he went on to add.

The final coalition agreement commits the government to finding ways of taxing non-business capital gains "at rates similar or close to those applied to income." This could mean that the capital gains tax rate increases to 40% or 50% in certain circumstances.

Cameron's comments were made as former Conservative front bencher David Davis became the latest senior Tory to speak out against the CGT proposals. Writing in the Daily Mail, Davis said that raising the rate of CGT would "penalize hard work and saving."

"Far from taxing the rich, it will simply tax the elderly at their point of maximum vulnerability — when they enter retirement. And it will damage long-run social mobility. It will also damage long-run savings rates and economic growth," Davis argued.

Davis also pointed to recent research which suggests that there is an inverse relationship between the level of CGT and revenues collected whereby capital gains tax revenues tend to fall as the rate rises and visa versa.

Meanwhile, Vince Cable, the Business Secretary and a senior Liberal Democrat, has reiterated his view that CGT must be aligned with income tax rates to prevent tax avoidance.

"It's very important that we have wealth taxed in the same way as income," he told the BBC.

"At present it is quite wrong and it is an open invitation to tax avoidance to have people taxed at 40% or potentially 50% on their income, but only taxed at 18% on capital gains; it leads to large scale tax avoidance so for reasons of fairness and practicality, we have agreed that the capital gains tax system needs to be fundamentally reformed," Cable said.

Recommended