UK Bosses Sound CGT Alarm

by Robert Lee, Tax-News.com, London

09 June 2010

More than 200,000 ordinary taxpayers in the UK will be hit by the government's decision to realign rates of capital gains tax (CGT) with income tax, according to the Institute of Directors (IoD).

The IoD has warned the government as it prepares its emergency budget, to be announced on June 22, that the people most likely to suffer from the proposed changes to the CGT regime are those with small shareholdings in businesses in which they work, and those who have chosen to invest in shares and in property in order to provide for their retirement.

According to analysis of the proposals, which have yet to be finalized, 230,000 individuals per year have gains exceeding the CGT threshold, currently GBP10,100, and half of these people have modest gains of GBP25,000 or less.

“The government would be sensible to note the strength of feeling on this issue in the business community and among ordinary investors in shares and property," commented Miles Templeman, Director General of the IoD. "The more we look at the CGT increase, the more we can see that it will directly penalize many thousands of people who cannot be described as rich. And it will indirectly penalize those who want to live in a thriving economy, because it will deter enterprise and thereby damage growth."

“The government says that it cares about the impact of the tax system on enterprise. It now needs to prove it," Templeman declared.

The IoD suggests that a "generous" taper relief would support long-term investment.

"If that is not introduced, then a broad definition of the business assets that will be protected from the increase, including all shares that are held by directors and employees, will be vital," Templeman remarked.

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.

Fearing a rebellion from his own backbench MPs for forcing through what is a Liberal Democrat proposal, Prime Minister David Cameron recently said that he is listening to concerns from businesses and investors over the CGT plans, and he has stressed that there will be generous reliefs for business income under the new capital gains regime.

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