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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 MGI UK 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 of 10p in the pound on profits above their £9,200 tax-free allowance, instead of 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 an asset's rise in value, which would have triggered 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 from 6 April, when a flat rate of 18 per cent would be introduced – but to help entrepreneurs, he said there would be a ten per cent rate on gains of up to £1 million accumulated during their lifetime.

To qualify for the relief, a taxpayer will have to own at least five per cent of a trading business and be an employee, director or hold another office within the company. The relief will cost an estimated £200 million a year and 80,000 people could benefit in the next tax year.

Keith Bell of MGI UK Member firm, Rickard Keen said: “This is welcome news, which ends several months of uncertainty as the business community 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 still a valuable concession. CGT remains a complex area 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.

“It is now crucial to establish if any anticipated transactions will give a lower tax take if implemented before 5 April 2008 under the existing rules or if there is a better result available under the new rules which will be effective from 6 April.”