Anger over tax U-turn

Originally Alistair Darling planned to introduce a flat rate of 18% CGT, but was forced to modify the plans after a backlash from business. The chancellor has now announced an Entrepreneurs’ Relief, which introduces a 10% threshold for the first £1m worth of capital gains over a lifetime.

Other changes to the CGT regime include the abolition of both taper relief, which can result in a 10% tax rate, and indexation relief, which avoids tax on inflationary gains. For non-UK domiciled but tax resident individuals, there is a loss of all the CGT advantages on

their offshore assets and trusts.

Lisa Parisi, tax partner at Pinsent Masons, says: “The new Entrepre­neurs’ Relief has been announced as a concession to help ensure that 90% of business sales next year will remain within the 10% tax rate. However, this hides the fact that the new rules will result in a number of inequities and will leave out entirely many of the taxpayers that are fundamental to the success of the UK economy.”

She says that in many cases investment by management share­holders in private equity deals will be in less than 5% of the share capital and they will therefore miss out entirely on this new relief. “The new regime will also penalise long-term entrepreneurs who have held their businesses for many years.

By abolishing [taper and indexa­tion] relief some long-term business owners will find themselves paying tax at a higher rate than they were promised on gains that don’t outstrip inflation,” she adds.

David Kilshaw, head of private client advisory at KPMG in the UK, comments: “The chancellor promised a simplified CGT system, with one tax rate. This announce­ment has killed that hope. The new relief will add complexity, which will add to red tape and costs for business.”