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City balks at shock rise in Capital Gains

THE City yesterday lashed out at the decision by the Conservative led coalition to increase Capital Gains Tax (CGT), warning that it would seriously inhibit investment.

After the coalition government said CGT would be raised as part of a rejigging of the tax system Simon Walker, Chief executive of the British Private Equity and Venture Capital Association (BVCA), said: “The BVCA will be actively engaging with ministers to urge them not to make hasty decisions in this complicated area. The last time that a government here raised the rate of CGT from 10 per cent to 18 per cent, the revenues accumulated fell sharply.”

The private equity industry said it was frustrated by the government’s lack of detail about the rise, adding that it could threaten Britain’s attractiveness as a hub for the financial services industry.

Business leaders said the tax was unlikely to raise the extra £3bn in revenues that the government is hoping for.

The higher rate will only apply to non-business assets, with property buy-to-let investors likely to be the biggest losers. A flood of property is expected to enter the market as investors try to beat the rise.

Buy-to-let advisers said increasing CGT tax was a risky move at this point in time.

IG Index said the rises would have an impact on the contracts for difference (CFD) market, but spreadbetters are safe as they are not liable to CGT.

Q&A: CGT TAX RISE WHO’S AFFECTED?

Q. WHAT IS BEING PROPOSED FOR CAPITAL GAINS IN THE CON-LIB AGREEMENT?

A. The Conservatives and the Liberals have agreed to seek a detailed agreement on taxing non-business capital gains at rates similar or close to those applied to income, with generous exemptions for entrepreneurial business activities.

Q. HOW FAR WILL THE TAX RISE?

A. The tax could rise from a rate of 18 per cent to 50 per cent. This brings it in line with the top rate of income tax.

Q. WHO IS LIKELY TO BE EXEMPT FROM THE TAX RISE?

A. Entrepreneurs, spreadbetters, and lower and middle income earners who are set to receive a substantial increase in the personal allowance.

Q. WHO IS LIKELY TO BE AFFECTED BY A RISE?

A. Buy to let investors, private equity and CFD investors, shareholders, bondholders and mutual funds.

Q. HOW MUCH WILL IT RAISE?

A. £1.6bn, according to Capital Economics.