Advisers warn a proposed substantial rise in capital gains tax (CGT) on so called 'non-business' assets could damage fragile investor activity.
Proposals mooted so far could see CGT soar to 50%, the same level as higher rate income tax, up from its current level of 18%.
The rise would pay for a cut in income tax for lower paid workers on the first £10,000 of earnings; a key Lib Dem election campaign pledge.
But investment advisers say the move could harm the fragile recovery in investor confidence.
BestInvest senior investment adviser Adrian Lowcock says: "This will have a significant impact on investors looking for ways to supplement their income in this low interest rate environment and who have used capital gains as a tax efficient means to do so, through equity investment or specific products such as zero dividend preference shares.
"Investors seeking income or growth should continue to use their full ISA allowances of £10,200 and other tax efficient wrappers such as pensions, VCTs or EISs."
Gains through the sale of property could also be a target, which could put a dent in the housing market. There will be "generous exemptions for entrepreneurial business activities" but it is not yet clear what these will be.
Assetz chief executive Stuart Law says: "Continued stability of the current 18% tax rate is imperative in driving investor activity and securing a full recovery for the property market.
"Any exorbitant increase on the tax rate will only slow economic growth and scupper the Government's promise to revitalise the markets."
Advisers are urging clients to look to mitigate a CGT tax rise now, though Christchurch Investment Management associate director Tony Shah says even that may not be enough.
"Those selling property could now be seeing a very nasty 50% charge. The Budget is due before mid-June, so people worried about CGT should use their exemption now or if they have to pay it, take the hit now while it is at 18%.
"However, the Government could say a CGT rise is instantaneous and for the whole tax year, which is the big worry."
The National Landlord Association (NLA) is calling on the Government to include capital gains from the sale of residential property as part of the wide-ranging "generous exemptions".
Otherwise the new CGT regime will act as a significant disincentive for landlords considering further investment, it says.
NLA chairman David Salusbury says: "When landlords let property they are running a lettings business. Today, we are calling on the Government to ensure profits from this business activity are included as part of the exemptions.
"We are concerned that a tax increase of this nature will act as a barrier to further investment in residential property just at a time when there is an urgent need for more housing."
Last night, the new Lib Dem-Tory coalition Government announced it would hold an emergency Budget within the first 50 days of office.
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