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| CURRENT SECTION :: Money News | UK's most visited IT Contractor Site - 250k unique visitors March 2008 |
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Alistair Darling is expected to stand firm on capital gains tax when he delivers his first Budget in less than ten days’ time. Whitehall whispers heard by a Sunday newspaper reveal the chancellor is unlikely to meet entrepreneurs’ concerns about scrapping taper relief any further than providing ‘relief.’ Announced in February after protest from businesses, “entrepreneurs’ relief” states that company owners who sell-up will pay 10% on any gain in the lifetime of up to £1m. This is a climb-down: in October, Mr Darling cut an effective rate of 10%, without consultation, and replaced it with a new single CGT levy of 18%, without the lifetime caveat. But in draft legislation last month, the Treasury said CGT of 10% would be granted to anyone who owns at least 5% of a trading business as an employee, company officer or director. The brief but troubled history of the chancellor’s tax proposals, including CGT, is worth repeating as only one in ten firms quizzed by Alliance & Leister knows what they mean. As part of CGT reform, entrepreneurs will be taxed at 18% once their gains exceed £1m, but gains at 10% on more than one business can be accumulated under the threshold. However, the draft legislation also reveals that company owners who sold in recent years and were paid in bonds will pay the higher rate of 18%, despite expecting to pay just 10%. It means entrepreneurs who sold a multi-million pounds business and are now sitting on more than £1m in bonds, such as loan notes, that are yet to mature into cash will pay 18% on gains over £1m. The Treasury explained: “For disposals on or after 6 April 2008 and held over gains coming into charge on or after 6 April 2008 taper relief will be available (even if assets were held before this date) and the chargeable gain will be liable to tax at the new rate of 18%”. Affected entrepreneurs, who might have deferred gains to reinvest later into new ventures, are outside the 80,000 individuals that the Treasury estimates will benefit from entrepreneurs’ relief. Officials could have decided to exempt all deferred gains tied up in qualifying corporate bonds, like loan notes, from the higher 18% rate, because “thousands” of entrepreneurs will presume to be exempt. Grant Thornton, the chartered accountant, also told the Daily Telegraph that such growing business owners face a “nasty shock” because the proposal goes against their “reasonable expectations”. The CGT relief rate of 10% will also be restricted on an associated disposal, such as the sale of a company’s premises, if the asset was not wholly in business use throughout the period it was owned. Almost a quarter of business owners singled out CGT as the most worrying issue in next month’s Budget, making it the second biggest tax fear after corporation rates. Based on their account holders’ responses, Alliance & Leicester Commercial Bank said the Budget is causing anxiety for 70% of smaller businesses in the UK. “Recent announcements and subsequent amendments to proposals around the capital gains tax rules...have received an extremely negative response from business,” echoed Tom McGinness, head of middle market tax at KMPMG. “And we still don’t have the final legislation. This leaves businesses operating in the dark – a position they find extremely uncomfortable, and also leaves them feeling uneasy about what future changes might be introduced without prior consultation. He added: “While these are fairly extreme examples, they are not isolated incidents. It’s important for business to know where it stands and to be confident that a decision based on today’s environment will still make sense tomorrow. If the rules keep changing then it’s almost impossible to keep up.” Mar 3, 2008 Email this article Printer friendly page Previous Page
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