Accountants' attack on increases in CGT

The company claims that under the new plans, as well as paying tax on profits, both savers and investors could also be paying tax on inflation.

The Government unveiled proposals during the Queens Speech to increase CGT on non-business assets from 18 per cent to either 40 or 50 per cent to bring it closer to income tax levels.

However, according to Steven Gash, practice chairman of Clough & Company, unless the Government also reintroduces some form of relief for inflation, many long-term savers and investors will be unfairly penalised for simply trying to give themselves financial security in the future and will effectively be paying higher rates than the income equivalent.

Mr Gash said: "Before the 18 per cent CGT rate for individuals was introduced two years ago, any gains were first reduced to take inflation into account before the balance was taxed at 40 per cent.

"To simplify what had become a complicated calculation the chancellor at that time worked out that the average amount people paid was approximately 18 per cent so in 2008 he introduced this as the CGT rate in order to simplify the process.

"However, increasing CGT without reintroducing inflation relief is a big disincentive to save and invest for the future.

"It also means that the longer people hold assets, from second homes through to company shares, then the more CGT they will have to pay because as time goes by, the more these assets are affected by inflation.

"Furthermore, inflation relief is still available to companies making capital gains which means, for example, that if a company bought an asset for 100,000 in 1982, based on the Treasury's published inflation index, they can sell it free of tax for up to 277,000.

"However without the same recognition for inflation under the coalition's proposals the same asset sold today by an individual would unjustly attract a tax charge of over 70,000 assuming a 40 per cent tax rate."

Mr Gash added: "Increasing CGT is intended to close a loophole allowing very high earners to avoid income tax by moving their income into savings assets before paying just 18 per cent CGT. Whilst it will achieve this, it looks as though it will be long-term savers and those that have tried to provide for their futures that will bear the brunt of these changes."