Chancellor George Osborne is under pressure to slash capital gains tax (CGT) for landlords in the upcoming Budget.
Experts from think tank the Adam Smith Institute reckon he could boost tax revenue and encourage economic growth by trimming CGT rates when he takes to the floor of the House on March 20.
The institute points out that HMRC figures for 2010-11 show that the rise in CGT failed to raise extra revenue as intended.
CGT was increased from 18% to 28% for many higher rate taxpayers in June 2010. The timing allows economists to monitor the impact of the change during the tax year.
By comparing the 78 days from April 6, 2010 to June 22, 2010, and the 287 days from June 23, 2010, to April 5, 2011, a marked fall in revenue is seen.
Pre-June 23rd 2010, the annual equivalent CGT revenue at the 18% rate was £6.9 billion.
After the change, the annual equivalent CGT revenue at the 18% rate was £0.2 billion and at the 28% rate was £2.2 billion.
According to the institute, people took steps to realise gains before the rate increased.
Furthermore, it says that CGT is, in effect, a voluntary tax and only paid when people choose to dispose of their assets. If they feel that rates are too high they will keep hold of them. Only a few are forced to sell, such as the elderly who need to release cash for long term care.
The institute says that high CGT rates depress economic activity and tie up capital, lowering revenue and stunting economic growth.
Calling on the coalition government to reduce CGT rates to their pre-2010 levels, the institute explains the move will stimulate growth and swell government coffers.
Director Dr Eamonn Butler says the CGT increase has failed because it brought in less revenue and reduced available capital in the economy. “That is the last thing businesses need at a time when bank loans are so difficult to get,” he said.