ITN: Capital gains tax increase 'will widen deficit'

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22 May 2010

The coalition Government's proposal to put up capital gains tax (CGT) could result in less revenue for the Treasury, according to the Adam Smith Institute.

The Conservatives and the Liberal Democrats have agreed to tax non-business capital gains at rates "similar or close to those applied to income".

This means CGT could be increased from its current level of 18 per cent to 40 per cent.

But, in a report by the Adam Smith Institute, investors are said to believe the measure would be temporary and would defer capital gains until the rate reduced.

The reports said: "Taxpayers can simply avoid selling assets that are subject to the tax and also avoid buying assets that are subject to the tax."

Madsen Piries, president of the Adam Smith Institute, said: "In intending to tax the rich, politicians, without understanding the effects if their actions, are proposing measures which will decrease the Treasury's tax take."

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