Capital gains tax rise to punish prudent savers
A rise in capital gains tax would cause "unfair financial hardship" for prudent long-term savers, one of the world's biggest investment firms has warned.
The brunt of the increase in CGT may be borne by middle-class Britons who have been saving over the long term for their retirementPhoto: GETTY
The Government confirmed in the Queen's Speech on Tuesday that it planned to increase CGT on non-business assets from its present rate of 18 per cent to "closer to income tax" levels, possibly to 40 or even 50 per cent.
But Fidelity International, which manages £150 billion of individual and company savings plans, said it had "serious concerns" about the proposed tax change and said it was "urging the Government to listen before it is too late".
The powerful investment house, which owns a big stake in most of the companies listed on the FTSE 100 index and rarely speaks out publicly, said CGT increases should be targeted at short-term speculators rather than being applied in a way that would cause "unfair financial hardship to long-term savers".
Today, The Daily Telegraph launches a campaign against the proposed tax increases and invites readers to lobby George Osborne, the Chancellor, to reverse his plans, which are due to be unveiled in the emergency Budget next month.
Fidelity's intervention will add to the pressure David Cameron is facing from senior Tories over the issue.
Fidelity argued that CGT rises should take into account inflation to avoid savers being taxed unfairly.
Gary Shaughnessy, the UK managing director at Fidelity International, said: "We are particularly interested in defending the interests of prudent individuals who invest for the long term. These investors deserve to be treated differently from speculators who are looking only for short-term gains."
The Liberal Democrats drew up the CGT plans following the introduction of the new 50p top rate of income tax for high earners.
They were intended to deter wealthy financiers, speculators and private equity executives from moving their income into savings assets, on which they would then only pay 18 per cent capital gains tax. However, it is feared that the brunt of the increase in CGT will be borne by middle-class Britons who have been saving over the long term for their retirement, rather than such high-earners.
Fidelity said its analysis showed that someone who invested £10,000 in the FTSE All Share in 1988 would currently face a tax bill of £9,910, based on the value of their shares having increased to £75,155.
However, if CGT were increased to 40 per cent without any indexation link to inflation, the tax bill would more than double to £22,022.
Mr Shaughnessy said: "If the Government does increase CGT across the board, taxable gains should be reduced by the amount due to inflation or by taper relief. This avoids investors being unfairly penalised by being taxed on increases in value solely due to inflation."
Fidelity said it was urging the Government to leave the CGT annual allowance at £10,100 in its emergency Budget on June 22.
Mr Shaughnessy said: "Reducing the annual limit would mean many prudent, everyday long-term savers would be penalised for simply trying to provide for their own futures. It might help towards reducing the deficit in the short term, but longer term, if we disincentivise savings, we'll simply end up with more people reliant on the State during their retirement years."
Other financial experts and politicians also urged Mr Cameron to abandon the "fundamentally unfair" CGT rise plans.
Mike Warburton, of the accountants Grant Thornton, said: "If someone has invested in shares or property over a long period of time, a significant part of that gain is going to be inflationary. It is inherently wrong to tax that gain at income tax rates.”
Economists have also warned that the Treasury’s overall CGT revenue could drop as a result of investors fleeing the new higher rate, meaning the recovery of the economy from the recession would be affected.
One in six families — a total of 3.75 million people — owns shares, while 250,000 families own a second home and there are a million buy-to-let properties. About 130,000 people pay CGT each year as they sell their assets to fund their retirement or other major expenditure.
Small investors and second-home owners currently pay capital gains tax at a rate of 18 per cent on the profits made on the sale of their assets. The first £10,000 of profits made each year are not taxed.
Last night there was a growing Tory rebellion against the CGT plans, with about 60 MPs preparing to publicly defy Mr Cameron to block the rise.
In a BBC Radio 4 interview, Mr Cameron said: “We will listen to all the arguments. The process is clear. The decision will be announced in the Budget.”
But Vince Cable, the Lib Dem Business Secretary who first plotted the CGT rise, rejected criticism of the plans from senior Tories, saying: “I’m not sure that reinventing the wheel is the best way forward.”
Today, The Daily Telegraph launches a campaign against the proposed tax increases and invites readers to lobby George Osborne, the Chancellor, to reverse his plans, which are due to be unveiled in the emergency Budget next month.
Fidelity's intervention will add to the pressure David Cameron is facing from senior Tories over the issue.
Fidelity argued that CGT rises should take into account inflation to avoid savers being taxed unfairly.
Gary Shaughnessy, the UK managing director at Fidelity International, said: "We are particularly interested in defending the interests of prudent individuals who invest for the long term. These investors deserve to be treated differently from speculators who are looking only for short-term gains."
The Liberal Democrats drew up the CGT plans following the introduction of the new 50p top rate of income tax for high earners.
They were intended to deter wealthy financiers, speculators and private equity executives from moving their income into savings assets, on which they would then only pay 18 per cent capital gains tax. However, it is feared that the brunt of the increase in CGT will be borne by middle-class Britons who have been saving over the long term for their retirement, rather than such high-earners.
Fidelity said its analysis showed that someone who invested £10,000 in the FTSE All Share in 1988 would currently face a tax bill of £9,910, based on the value of their shares having increased to £75,155.
However, if CGT were increased to 40 per cent without any indexation link to inflation, the tax bill would more than double to £22,022.
Mr Shaughnessy said: "If the Government does increase CGT across the board, taxable gains should be reduced by the amount due to inflation or by taper relief. This avoids investors being unfairly penalised by being taxed on increases in value solely due to inflation."
Fidelity said it was urging the Government to leave the CGT annual allowance at £10,100 in its emergency Budget on June 22.
Mr Shaughnessy said: "Reducing the annual limit would mean many prudent, everyday long-term savers would be penalised for simply trying to provide for their own futures. It might help towards reducing the deficit in the short term, but longer term, if we disincentivise savings, we'll simply end up with more people reliant on the State during their retirement years."
Other financial experts and politicians also urged Mr Cameron to abandon the "fundamentally unfair" CGT rise plans.
Mike Warburton, of the accountants Grant Thornton, said: "If someone has invested in shares or property over a long period of time, a significant part of that gain is going to be inflationary. It is inherently wrong to tax that gain at income tax rates.”
Economists have also warned that the Treasury’s overall CGT revenue could drop as a result of investors fleeing the new higher rate, meaning the recovery of the economy from the recession would be affected.
One in six families — a total of 3.75 million people — owns shares, while 250,000 families own a second home and there are a million buy-to-let properties. About 130,000 people pay CGT each year as they sell their assets to fund their retirement or other major expenditure.
Small investors and second-home owners currently pay capital gains tax at a rate of 18 per cent on the profits made on the sale of their assets. The first £10,000 of profits made each year are not taxed.
Last night there was a growing Tory rebellion against the CGT plans, with about 60 MPs preparing to publicly defy Mr Cameron to block the rise.
In a BBC Radio 4 interview, Mr Cameron said: “We will listen to all the arguments. The process is clear. The decision will be announced in the Budget.”
But Vince Cable, the Lib Dem Business Secretary who first plotted the CGT rise, rejected criticism of the plans from senior Tories, saying: “I’m not sure that reinventing the wheel is the best way forward.”
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