Darling announces CGT concessions

THE GOVERNMENT has announced concessions to its proposed changes to Capital Gains Tax (CGT) to help entrepreneurs and small business owners.

Chancellor Alistair Darling said as originally proposed there will still be a single 18% rate, up from 10%, and that taper relief will cease from April 1.

But he said there would be a 10% rate on gains of up to £1m to help smaller operators.

Despite widespread opposition from organisations including the IoD, CBI and Federation of Small Businesses (FSB), the Government had refused to back down after the announcement in October's Pre-Budget Report until today.

Reacting to the changes, Richard Lambert, director-general of the CBI, said although “superficially quite clever” the proposals would still see small business owners lose taper relief and he claimed they would be worse off than before last October.

Mr Lambert said: “The reality is that these revised measures will do nothing to help the real business powerhouses of this country. Although £1m might sound a lot, it could have been built up over 20 or 30 years. It is clear that the real wealth and job creators of the UK's economy, selling assets for a lot more, will be seriously clobbered.

“Today's changes still discriminate against the long-term holding of assets, in favour of short-termism, and will do nothing to restore stability to the life insurance market, which faces a period of turmoil.

“The bottom line is that the reaction of the UK government, in the face of an economic slowdown, has been to slap on a major tax hike of £700m. This will have a damaging effect on job creation, investment and savings at exactly the wrong time in the economic cycle.

“The relationship between Government and business has been damaged by this affair and will take time and effort to rebuild.”

Debra Howarth, tax director at PricewaterhouseCoopers in Leeds, said: “We will always welcome moves to create simplicity in the tax system. But this needs to go hand-in-hand with providing certainty to taxpayers and being willing to listen to those affected. Frequently tweaking the UK tax system – as has been evident with the CGT system – only adds to complexity.

“If the Government is committed to simplifying the UK tax system, it must work with business to implement a long term strategic tax policy framework. Business will then have more confidence to plan ahead and in turn be more welcoming to future, planned changes to the tax system. Without this, the UK will struggle to achieve its potential as a true enterprise economy.”

Ian Williams, policy director at Leeds Chamber of Commerce, said: “It is welcome that the Government has recognised the concerns raised about the damaging nature of the CGT reforms on small business. Keeping the 10% rate on gains up to £1m will be a great relief for many small business owners, allowing them to gain from the risks they have taken over their career.

“What can not be ignored however, is that the ultimate impact of these changes is going to be a £700m tax take from business. It is also clear that this has done nothing to simplify the taxation system, the original stated aims of the changes.”

Miles Templeman, director general of the Institute of Directors (IoD), said: “The Government has listened to some of our concerns and the new relief will benefit many small businesses. Of course we welcome that, but there will still be a very large tax hit on business overall.

“We do have specific concerns. The lifetime limit will be a constraint on serial entrepreneurs. The distinction between business and non-business assets will retain an element of complexity. And the fact that there will be no fully exempt gain means that complicated calculations will still be needed in all cases.

“We are disappointed that the Chancellor has ruled out a delay in implementation. There are only ten weeks of the tax year left, which does not give businesses much time to plan their affairs. A delay of a few months would have been very helpful.”

Taper relief currently allows some higher rate taxpayers to pay 10% CGT on profits from the sale of assets in any company they work for, as long as they have held them for two years.

The changes were aimed at plugging the loophole which had seen wealthy private equity bosses, who have made fortunes from buying and selling companies, being able to pay just 10% on their profits.

But critics said that the plans would hit small business owners, who had spent their lives building up a business, being taxed at the higher rate when they sold it.

Dave Irwin of BTG McInnes Corporate Finance in Leeds commented: “Any change from the original plan is a good thing, and it is going to help those exiting from smaller businesses, but it is still punishing those who have worked hardest, created the most employment and generated the most wealth for their region, and that's just wrong.

“This is a small concession for PR reasons that is intended to remove some aspects of criticism whilst sacrificing very little of the exchequer's potential revenues. The policy remains the single least enterprising tax move in decades, and underlines how little this Government either values, or understands investors – all at a time when more than ever they need to drive future enterprise, not stifle it.”