Business News - January 2008

CGT U Turn Welcomed

A major change to Chancellor Alistair Darling’s plans for a controversial shake-up of the capital gains tax regime has been welcomed by Wycombe accountants, Fish Partnership, as a respite for businesses.

In his October 2007 pre-Budget report, Mr Darling announced that he planned to scrap taper relief on capital gains tax (CGT) from April 2008. Currently, someone selling shares or a business they have owned for more than two years pays CGT at an effective rate of10 per cent instead of the normal 40 per cent, assuming they pay the higher rate of income tax.

Mr Darling planned to levy CGT at a flat rate of 18 per cent and to scrap the indexation allowance, which inflation-proofs part of an asset's rise in value triggering a steep rise in CGT bills.

The proposals attracted opposition from the business community, including the Institute of Directors, the CBI and the Federation of Small Businesses, which regarded the plan as damaging disincentive to enterprise and investment and a serious blow to small business owners planning retirement sales. A petition opposing the move on the Prime Minister’s website has attracted more than 18,000 signatures.

Today Mr Darling confirmed that taper relief would cease with the introduction from 6 April of a flat rate of 18 per cent – but to help entrepreneurs, he also announced a special relief giving an effective rate of ten per cent rate on gains on the disposal of businesses by certain individuals and trusts of up to £1 million during their lifetime.

Peter Jay, tax partner of Fish Partnership said: “This is welcome news, which ends several months of uncertainty for the business community as they waited for Mr Darling to finalise his proposals. It shows the strength of the voice of the UK business sector, and its importance in the country’s economy, that he has modified his plans in the light of some very vocal opposition.

“While he may not have gone as far in amending his proposals as some in the business community would wish, this is a valuable concession. The new relief contains some complex conditions and anyone considering the sale of a business or substantial shareholding would be wise to seek the advice of a qualified professional in exploring the most beneficial tax options.”

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