Writing in today’s Daily Mail, Davis warns the coalition Government’s proposal to hike CGT, potentially to bring it in line with income tax levels, would hit “the hard-working, responsible, self-reliant middle and working classes who want to get on”.
Davis warns that increasing CGT is unlikely to bring in the expected revenues calculated by the Government as it will be avoided by the very wealthy and that the elderly will be hit hardest.
He says: “For the really rich, Capital Gains Tax is a voluntary tax. Those with large estates can afford the expensive accountants who minimise their taxes.
“Even those on middle incomes can often wait before selling their shares or second homes. So when rates go up, people pay less. There is one category of people, however, for whom this is not true — and it highlights a stark unfairness in this tax. The largest group of people who cannot choose whether or not to pay the tax are the elderly.”
Davis suggests introducing a short-term CGT level starting at 40 per cent or 50 per cent which would taper down to 0 per cent the longer assets are held over a five year period. “This would prevent the problem of switching income to capital for tax avoidance purposes, would encourage long-term saving and investment, would avoid distorting investment decisions, would make us internationally competitive and would raise extra revenue,” he says.
Yesterday, senior Tory backbencher John Redwood (pictured), who is leading the revolt, wrote an open letter to exchequer secretary to the Treasury David Gauke in which he outlined his strong opposition to the CGT rise and suggested an alternative.
Redwood warned the proposed hikes to CGT with allowances for business assets would hit long-term savings outside of tax wrappers and people owning buy-to-let properties.
Redwood suggests a similar proposal to Davis with one year gains taxed at the top level of income tax tapering down to 0 per cent for assets held over five years.
Redwood says: “I have been swamped with support for these suggestions, both from around the country and from Conservative MPs. It would send a strange signal if a Lib/Con government decided to more than double the CGT rate set by a Labour government. It would damage the revenues and be unfair to anyone who saves, is prudent, or who ventures their money for the greater good.”
Speaking today to the BBC, LibDem Business Secretary Vince Cable says the CGT rise was a crucial part of the coalition deal.
He told the BBC: “It is very important that we have wealth taxed in the same way as income. At present it is quite wrong and it is an open invitation to tax avoidance to have people taxed at 40 per cent or potentially 50 per cent on their income, but only taxed at 18 per cent on capital gains; it leads to large scale tax avoidance so for reasons of fairness and practicality, we have agreed that the capital gains tax system needs to be fundamentally reformed.”