Fidelity says the Chancellor’s decision to set capital gains tax at a flat rate of 18 per cent means investors in equity funds are big winners and says this move could boost long-term savings.
Chancellor Darling set out the changes in his pre-Budget report yesterday and Fidelity says investors in equity funds held outside of a tax wrapper such as a PEP or ISA are likely to emerge as big winners.
Under the current arrangements for taper relief, higher-rate taxpayers face a minimum tax-charge of 24 per cent on stock market gains, provided that they hold the assets for at least 10 years.
The new 18 per cent flat rate of CGT will also make capital gains more attractive than income, whether generated by bonds or cash, which will continue to be taxed at 40 per cent for higher-rate taxpayers.
Fidelity says even basic rate taxpayers will enjoy a lower rate of tax on capital gains than on interest from a cash deposit account.
Fidelity International UK managing director Richard Wastcoat says: “This could be a real shot in the arm for long-term savings at a time when the Government is keen to encourage individuals to invest more for their retirement. For higher-rate taxpayers in particular, stock market investment will overnight become far more attractive than squirreling money away in a cash account.
“As a result of this change to CGT, many investors may choose to realise capital gains from their equity fund investments at regular intervals, rather than take income in the form of distributions or dividends. Capital gains can now be far more tax-efficient than income for many investors.”