CGT hike could also hit basic rate taxpayers

The hike in capital gains tax will hit middle income earners who have invested in assets such as property over many years, tax experts have warned.

While yesterday's announcement from chancellor George Osborne revealed the CGT rate for high earners would increase from 18% to 28%, lower earners could also be hit by the rise if the sale of an asset takes them into the higher income threshold.

Tony Bernstein, tax partner at HW Fisher & Company chartered accountants, said: 'On the surface, it appears that the 28% rate will only affect higher earners whereas, in reality, people on lower incomes could also easily be caught by it.

'The 18% CGT rate for people on basic rate tax will increase to 28% if the gain, when added to their income, pushes them over the threshold into the higher rates of tax.'

Bernstein said the tax rise would therefore be extremely unpopular with people who have held investment assets, such as property or a portfolios of shares, for many years.

Property has been used by some investors instead of a pension, and David Smith, senior partner at estate agents Carter Jonas, said investors would now be better off holding on to properties and renting them out if they were able to.

'A lot of people who have bought properties as an investment for their retirement, rather than paying into a pension, are likely to be renting out those properties and benefiting from the monthly rental income,' he said.

'If there isn't any urgency to sell, then the advice would be to hold off selling for the time being, especially as the rental market is currently very strong.'

But Nicola Plant, partner at law firm Thomas Eggar LLP, said the government's move was positive overall, as it had resisted raising CGT for higher rate taxpayers to the 40% rate it stood at before the flat 18% rate was imposed.

'If it is property people bought years ago you will still be better off, as the previous rate used to be 40%,' she said.