Firms 'rush' to sell-up before CGT rise

Proposals to double the rate of tax entrepreneurs pay when they sell their companies may spark an exodus of money-makers from Britain's economy.

According to fresh figures from the CBI, almost six out of ten company owners expect a "negative impact" on their business when the tax rise hits in April.

Under the proposal, taper relief on capital gains tax (CGT) would go - meaning those who sell-up after two years will no longer payout 10%, but will face a single rate of 18%.

When the government unveiled the move last month, experts said owners should sell-up before the April deadline in order to avoid heftier tax bills .

"I've certainly noticed a sharp upturn in queries from those who are considering a 'business exit' on a basis which is potentially liable to CGT," Roger Sinclair, a legal consulant at Egos Ltd, a contract and commercial law specialist, told CUK last night.

A poll of the CBI's members, who run small or mid-sized firms, found 85% of those negatively affected said no relief when selling-up was their biggest concern.

Forty-three per cent of owner-managers have altered their investment plans in a new business, and more than one-third have cut their investment in an existing venture.

The Confederation of British Industry (CBI) also found that 63% of firms believe the shake-up to capital gains tax was not a "desirable simplification," contrary to claims by the government.

More than four in ten equity holders plan to become "less entrepreneurial", while investment cutbacks are likeliest among the youngest and smallest ventures, says the poll of 500 firms.

Little wonder then as to the most damning findings: 70% think the changes undermine the government's approach to enterprise; 72% believe its commitment to enterprise is in doubt, and 93% think it needs to do more to restore its commitment to an enterprise culture.

John Cridland, the CBI's deputy director-general, also blasted that, in fear of higher tax bills, owners "rush through plans for [their company's] sale" serving to "distort" the market.

Mr Sinclair reflected: " I am advising those who are considering doing so [selling-up] to focus and firm up their decisions and plans now, not leave it till the last minute."

The CBI believes the government's standing with business has been "sorely undermined" by the proposed change to CGT, " and there is a lot of damage to be repaired."

"Entrepreneurs are now less inclined to do what they do best: taking risks, investing in ideas and driving the economy forward," Cridland said.

"These changes are trampling on the spirit of enterprise and discouraging entrepreneurs from investing in their businesses".

All four of Britain's major business groups are lobbying Alistair Darling, the chancellor, to rethink his proposals, with a view to offering more relief on CGT than has been whispered about in Whitehall .

The CBI said: "The Chancellor needs to recognise the consequences of these ill-conceived proposals and must find alternatives to the capital gains tax changes as a matter of urgency."

In a reported development yesterday, a Tory-led government would apparently set the rate of capital gains tax entrepreneurs must pay when selling-up to the initial 10 per cent.

The Sunday Telegraph also claimed the proposed reversal would cover employee shareholders, but the party plans not to extend it to private equity captains, who would pay up to 18 per cent.

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