our parliamentary correspondent, Accountancy Age, Thursday 27 May 2010 at 08:09:00

Pressure mounts to avoid drastic changes to capital gains tax

Tory MP John Redwood has emerged in the new Parliament as the first heavyweight backbencher to rebel against Lib-Con plans to raise Capital Gains Tax from 18% to levels "closer to those applied to Income Tax".

The former minister, who ended up among those who made life near impossible for former Tory Prime Minister John Major over the EU Maastricht Treaty, launched a detailed attack on the proposal in a Commons speech this week hours after the Queen's Speech spelled out the proposals for the emergency Budget.

Reports in the national press this morning are suggesting once again that assets are currently being sold at an accelerated pace in order to beat the impending rise.

The Times reports an unnamed sources saying that the chancellor might be considering watering down his plans, though detailed proposals have yet to be made public.

Redwood said raising more money from the tax required rates to be reduced, not increased, and spelled out his views in a letter to the Treasury the next day.

In the Commons he said there was a need to tax the rich more to deal with the deficit, but research showed increasing the rate of CGT would reduce the revenue produced .

In his letter he suggested resorting to tapering, with a 40% rate designed to catch investors taking a short term profit by speculating on an asset and rewarding those taking a longer view by reducing the rate over time to 30% for two years, 20% for three, 10% for four and a zero rate after five.

He said: "I have been swamped with support for these proposals, both from around the country and from Conservative MPs."

Redwood, who claimed to support the coalition as the only way forward given the election result, said however: "It would send a strange signal if a Lib-Con government decides to more than double the CGT rate set by a Labour government.

"It would damage the revenues and be unfair to anyone who saves, is prudent, or who ventures their money for the greater good."

A spokesman for Prime Minister David Cameron said: "The position on CGT is that there will be an announcement in the budget."

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