Brown looks at capital gains tax cut

LABOUR is considering cutting rates of capital gains tax (CGT) to boost the stock market and encourage investors to consider buying shares again.

Civil servants in the Treasury have indicated in private meetings with top tax advisers that a cut in CGT, which is charged on profits from the sale of investment assets, is on the agenda.

The revelation is set to push tax forwards as a key battleground in the General Election.

The Conservatives have already pledged to reduce the overall tax burden and have singled out inheritance tax (IHT) as one levy they plan to cut.

Labour is thought unlikely to touch IHT, because many of its MPs see it as a tax on the rich.

BDO Stoy Hayward tax partner Stephen Herring, however, pointed out that with rising house prices many people who do not consider themselves rich have been pushed above the £263,000 IHT threshold.

'Inheritance tax is not a problem for the super-wealthy because they can get proper advice and get their IHT liability down to a very modest sum. This option isn't really available to those with assets of much less than £1m but who nevertheless fall into the IHT net. Many of these people could be described as 'Mondeo Man' and they are an important voter for Labour to have on side by the election.'

Other tax advisers welcomed news that the Government may adjust the complex structure of taper reliefs that reduce the taxable amount due on investment profits.

Some hope that the Chancellor could signal a new approach to CGT in the Pre-Budget Report, which is to be unveiled on 2 December.

The Pre-Budget Report has increasingly been used by Brown to unveil contentious issues which are then fleshed out in the main Budget speech in the spring.

BDO's Herring said many advisers will study the Pre-Budget speech for clues.

'Let's see what he doesn't rule out for the post-election period. My money is on a rise in National Insurance.

'I believe that while he may rule out an increase in the higher rate of income tax, currently 40%, he may well say nothing about National Insurance. He could quite easily hang the whole pensions issue on NI by telling people they have to pay more National Insurance to fund their pensions in old age.

'It may not be called income tax but it's still a tax on your income.'