Ernst & Young comments on the Chancellor's Capital Gains Tax revisions


25-01-2008

The announcement by the Chancellor yesterday (Thursday) of revisions to the planned capital gains tax regime from 6 April 2008, and the introduction of an “Entrepreneur’s Relief”, will at last provide a level of certainty over the new regime, says Ernst & Young.

The changes will lower the tax rate to 10% on gains of up to £1,000,000, effectively retaining the business asset taper for gains of up to this amount. This removes the need for many to sell shares before April to avoid an 80% tax hike from 10% to 18%.

In commenting on the relief, Chris Sanger, Ernst & Young’s Head of Tax Policy and advisor to the Federation of Small Business which proposed a relief of this nature, said: “The move by the Chancellor is clearly positive for those with the smaller gains on businesses, whilst leaving gains in excess of the £1,000,000 limit subject to 18% on the excess. This represents a compromise between the demands of the business sector and the requirements of the Government for a simpler system.

"It will bring a large sense of relief to many of the small business entrepreneurs who have been struggling with the decision about whether to sell early, just to access the lower rate of tax.

"One concern with the proposal is the “lifetime” nature of the £1m limit. Once an entrepreneur has breached this limit, the 18% rate will kick in for future gains. This unfortunately will be seen as a disincentive to continued serial entrepreneurship.

"Now that the new regime is clear, taxpayers would be well advised to evaluate whether they are eligible for the new relief and whether they should be selling in advance of 6 April.”

 

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