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David Cameron has hinted he is preparing a climb-down on raising capital gains tax (CGT), after the planned move stoked open rebellion from his own party.
The Prime Minister has said tax rises are necessary to cover an increase in income tax thresholds to around £10,000.
But he suggested upping non-business CGT would only raise 'modest' revenue, and promised to listen to critics in his own party who want longer-term investors to be protected, the Daily Mail reports.
Conservative MP for Haltemprice and Howden, and former leadership contender in 2006, David Davis claimed the blanket rise would hit millions of middle-income savers and second home owners who need to dispose of their assets.
The row over raising CGT to the level of income tax has spiralled all the way to the Treasury, with senior Tory John Redwood writing to the department in protest.
The Conservative MP has been urging the Government to rethink planned rises in non-business CGT, and has written to Treasury minister David Gauke with an alternative way of raising the cash.
Under Redwood's plan, the tax rise would be replaced by a form of taper relief, where the longer an asset has been held, the lower the tax paid.
This is thought to be a potential option being considered by the Treasury.
Business secretary Vince Cable has insisted the coalition government is not split over planned tax increases.
He told the BBC: "It's very important we have wealth taxed in the same way as income.
"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."
However Christchurch Financial associate director Tony Shah says the linking CGT to income is "grossly unfair".
"People bought property as part of their retirement plans and now find they will be subject to 40% plus tax.
"Those who invested 10-15 years ago in something like property which they can not sell quickly are now stuck."
Shah says Redwood's taper relief alternative is "much more sensible", adding most investments are for the long-term, contrary to the Government's reasoning for the rise.
"There aren't many people who invest short-term. The buy-to-let market will be hit very hard, but generally these people are in it for the long-term."
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CGT
Vince Cable is wrong when he suggests that income and capital should be the same.The latter is a tax on risk and a gain cannot be asssured.His proposal is merely an envy tax that will actually see a reduced tax take as in my experience investors are unwilling to take a 40% tax hit.Its hardly promoting savings and investment,but perhaps he would prefer everyone to be on benefits.
Posted by: mark dampier
Fairness in taxation
The principle of equity to which Vince Cable refers is one which the Lib Dems, with their fairness agenda, can be expected to insist upon. If one persons’s wealth increases through taxed income, it is only logical that another’s capital gain should be taxed to the same extent. That apart, government should aim for minimal influence through tax measures on market forces for the good of the economy as a whole. The risk argument Mark Dampier mentions is a fair point, however. There should be an opportunity over a period of, say, five years to offset losses against gains. It should also be possible to slice one’s net gains over a five year period if they are to be added to income for tax calculations. This would, again to be fair, have to be coupled with the drastic reduction in the annual exemption which Vince Cable has argued for.
Posted by: Ragbin
Trust in goverment
Vince Cable's policies were voted into third place by the British electorate, so the very thought that these are now permeating into government is causing real anger among grassroots Conservatives. 16,000 more votes in a few marginals would have given the Conservatives a working majority. For years, whatever political party was in power, trust was built up in government by the inflation linked personal allowance and the idea that CGT should not be a tax on inflation. The imposition of a flat rate of CGT was the beginning of the erosion of trust. The party that did that could only manage a poor second. If Conservatives bring this failed policy (the reduction or abolition of the CGT allowance)into law the anger that many Conservatives are now expressing will - Mervyn King is right - threaten the future of the Conservative Party.
Posted by: Ken Durkin
Trust in government
Leaving aside the politics, Ken Durkin's “tax on inflation” argument is difficult to follow. Say inflation is running at 5% per annum. A and B each invest £100,000 in 2010. A puts his money in a bank account and receives interest of 5% per annum taxed at 40% and reinvests it. B buys an asset which produces no income but sees the value of his investment rise by 5% per annum and pays 40% tax on the gain when he disposes of it in 2020. Who will then be better or worse off? The outcome for each would seem to be about the same.
Posted by: Ragbin
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CGT
Vince Cable is wrong when he suggests that income and capital should be the same.The latter is a tax on risk and a gain cannot be asssured.His proposal is merely an envy tax that will actually see a reduced tax take as in my experience investors are unwilling to take a 40% tax hit.Its hardly promoting savings and investment,but perhaps he would prefer everyone to be on benefits.
Posted by: mark dampier