The world of private investment and individual trading has been set into freefall following the first budget of the new UK coalition government, with capital gains tax set to rise to an effective rate of 28% for higher rate tax payers in the UK. At a time when longer-term investors and more serious individual traders are looking to solidify their trading income, the rise comes as a blow for those with exposure to CGT tied up in their portfolios, and could potentially be a costly tax hike for traders with more significant holdings.

While the rate remains at 18% for basic rate tax payers, and the annual allowance portion remains fully intact, the top rate CGT hike looks set to distract many would-be investors from taking positions in assets liable to tax, like securities, creating in equal measure opportunities for more creative investment vehicles which deliver a more tax-efficient return.

Analysts across the City and beyond have read into the CGT rise benefits for the spread betting industry, which will retain its tax-free character for investors at all ends of the income scale. With the potential saving now at 28%, and the additional benefits of the leverage that spread betting affords, spread betting looks as if it may be set for an even more significant boost as traders investigate their options.

Joshua Raymond from leading broker CityIndex said he believes spread betting will pick up much of the slack left by investors looking to minimize their CGT liability from more commonly traded instruments and securities.

With the backdrop of the recession and continued volatility, people are taking a greater interest in the markets. Spreadbetting is an alternative way to trade the financial markets, with potential for tax free profits. CGT-free profits continue to be a major factor in attracting new spread betting clients to City Index.

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