DOZENS of senior Tories are trying to convince George Osborne to water down plans that could see capital gains tax (CGT) jump to 40 per cent.
City A.M. understands that the chancellor is considering an alternative set of proposals masterminded by veteran right-winger John Redwood.
Hiking CGT so it is taxed at a similar rate to income was a much-cherished Liberal Democrat election pledge that made it into the government’s coalition agreement, although it has caused dismay among some Tories.
Redwood told City A.M. that he had found a compromise that “ticks the Lib Dem boxes” while assuaging the doubts of Tory sceptics.
He is proposing a rate of CGT that drops over the length of time that an asset has been held. Under his plans, gains on assets held for a year or less would be taxed in-line with income, most likely at 40 per cent, with that tapering away to a zero per cent rate on gains on assets held for five years or more. Four-year gains would be taxed at 10 per cent, three-year at 20 per cent and two-year at 30 per cent.
“I’m trying to marry the Liberal Democrat wish to tax rich speculators more with the Conservative belief that we shouldn’t penalise enterprise,” Redwood said, adding his plan had the backing of “dozens of MPs”.
Osborne wants to increase CGT on “non-business assets” like second homes while introducing a series of reliefs and allowances for entrepreneurs and businesses.
But Redwood said “building up the good causes gets quite complicated” and that his plan to target the tax hike on short-term gains that were “more like income” was fairer.
Osborne has not backed Redwood’s proposals, but has not made a final decision on the issue.