Budget 2010: Berwin Leighton Paisner warns Darling not to raise CGT

Berwin Leighton Paisner (BLP) says Alistair Darling should resist raising capital gains tax (CGT) to avoid further damaging the competitiveness of the UK.    

BLP, which has 22 tax partners, believes the UK's tax system was one of the reasons why the London lost its rating as the number one financial centre in the world in the Global Financial Centres Index last week, tying in first place with New York.

The tax community is divided on whether the Budget, scheduled for 24 March, will see a raise in CGT to prevent higher earners who fall into the 50% income tax bracket coming into force in April 2011 from converting income into gains, which are charged at 18%.

BLP believes it would be a big mistake if CGT was raised. 'The government must resist the temptation to increase capital gains tax - it would not raise much revenue and would damage venture capital and entrepreneurial behaviour, which drives so much innovation and wealth creation in the UK.'

'The current rate of CGT is an international competitive advantage for the UK so if there is desire to align it more closely to income tax the smart move would be to lower the latter, not push up CGT and as the Institute for Fiscal Studies says, lowering high income tax rates usually increases the overall tax take.'

Wistow also fears tax policy has simply become a political football ahead of the general election later this year.

'Tax should neither be a drag on people’s commercial decision-making, nor used as a political football, he said. 'However the UK has become a less attractive and competitive place to invest or do business because of the tax regime’s uncertainty and complexity compared to its rivals, let alone the high rates.'

Wistow says the 50% income tax rate for individuals and the persistent lack of clarity over taxing companies’ foreign profits are two examples of how the system is more deterrent than enticement.

'To attract business investment and encourage entrepreneurial activity we need a tax regime which supports and rewards those who generate wealth and employment, not penalises them.'

Wistow also says there needs to be clarity on the taxation of foreign-controlled companies. 'Although taxation of companies’ foreign profits is not a vote winner it must be tackled and the Government has to accept that the rules need to be internationally compliant.

'The current lack of clarity is a deterrent to planning long term investments in the UK and is making many companies re-think the logic of headquartering here too.'