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UK Capital Gains Tax: over 200,000 ordinary taxpayers to be hit, says Institute of Directors

A proposed increase in Capital Gains Tax will hit more than 200,000 ordinary taxpayers, a leading business group has said.
The Institute of Directors said any increase would unfairly penalise "many thousands of people who cannot be described as rich".

UK Government is planning to increase capital gains tax from 18 per cent to "closer" to the 40 per cent income tax rate.

The tax-free capital gains tax allowance could fall from more than £10,000 to £2,500, under the plans which have been pushed by the Liberal Democrats.

The Institute of Directors found that people with small shareholdings in businesses in which they work were most likely to suffer.

The institute also said people who had decided to buy shares or property to provide income to pay for their future retirement would also be hit hard.

Half of the estimated 230,000 individuals who have made gains which exceed the annual £10,000 allowance made "modest" profits of £25,000 or less.

Two thirds of these gains were made on sales of shares and securities, assets which were vital investment in businesses, the institute said.

The tax change could mean that share ownership among private investors could now fall, which could damage the economy.

Miles Templeman, the director general of the Institute of Directors, urged ministers to think again before increasing the tax.

The poor state of the economy meant that the need for measures to reduce the impact on businesses and long-term investment was all the greater,

He said: "The Government would be sensible to note the strength of feeling on this issue in the business community and among ordinary investors in shares and property.

"The more we look at the capital gains tax increase, the more we can see that it will directly penalise many thousands of people who cannot be described as rich.

"And it will indirectly penalise those who want to live in a thriving economy, because it will deter enterprise and thereby damage growth."

The institute said that, given the poor state of the economy it was vital to find measures "to reduce the impact on businesses and long-term investment".

Brininging in a "generous taper relief would be an obvious solution", it said.

Mr Templeman added: "The Government says that it cares about the impact of the tax system on enterprise. It now needs to prove it.

"A generous taper relief would support long-term investment. If that is not introduced, then a broad definition of the business assets that will be protected from the increase, including all shares that are held by directors and employees, will be vital."

Since The Daily Telegraph began its campaign calling on the Government to reverse the planned capital gains tax increase for small investors and second-home owners, thousands of readers have responded, saying they are being punished for being prudent savers.

Last week it emerged that hundreds of thousands of old people in care homes could also be forced to pay the tax, if the Government went ahead with planned changes.

This is because person moving into a nursing home who continues to own the former family home can be liable to pay the tax because it is designated by the taxman as a "second property" after three years of living in care.

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