The Investment Management Association (IMA) today calls on the Government to implement the changes proposed for capital gains tax (CGT).
Chancellor Alistair Darling last week announced in the pre-Budget report that CGT, currently variable on circumstance, should be a flat rate of 18%.
Although some critics say the proposals have virtually sealed the fate of many small to medium-sized firms, the IMA says savers can only benefit.
Richard Saunders, IMA chief executive, says: “These reforms are good news for smaller savers.
“The present CGT rules, with different rates according to your marginal income tax rate, and how long you have held assets, are hopelessly confusing for ordinary investors.
“With a single rate at a modest 18%, and an annual exempt amount of £9,200, people will know where they stand.
“Most savers too will be better off. The great majority of investors in funds will face a lower tax rate on their capital gains, and the minority who do not, will have the option of minimising their liability by judicious use of the annual exempt amount.
“And of course those who make sure they put the first £7,200 of savings each year into an ISA will face no CGT at all on that money.
“This is a good deal for savers which the Government should implement in the forthcoming Budget.”
Loopholes allowing private equity bosses to pay little tax will be closed as a result of the CGT change, Darling said, ensuring those working in the sector pay a “fairer share”.
But some have questioned the benefits of a flat rate.
Investment firm Hotbed says the change could have dire consequences for small and medium sized businesses.
Chief executive Gary Robins says that by introducing a flat CGT rate, Darling has effectively removed the tax advantages available to investors who back unlisted companies.
“Doing away with taper relief altogether means that there is no longer any reason for investors to hold unquoted shares for a longer period,” he says.
“It will have the undesirable effect of encouraging short-termist investing.”
Chancellor Darling justified the rate change, branding it “one of the most competitive single rates of any major economy”.
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