Darling's changes to Capital Gains Tax: climbdown for entrepreneurs?

by Stuart Rock - Thursday, 24th January 2008 - (4) comments

So Alistair Darling will announce his new proposals on Capital Gains Tax (CGT). Will entrepreneurs be pleased with the outcome?

According to the FT, it will be a "humiliating climbdown". The FT says that the CGT changes will be "modelled closely on a proposal by the Federation of Small Businesses" for an “entrepreneur’s relief” that would halve the 18 per cent rate on gains of up to £750,000.

The Telegraph reckons that entrepreneurs will be disappointed. It quotes the IoD's Miles Templeman as saying: "They are not changing the principle and the overall direction of the pre-Budget report proposal. They are sticking to it and taper relief will go."

The Times reckons that entrepreneurs have been granted a "reprieve" by Darling on CGT. It, too, reckons that CGT for entrepreneurs will be calculated on a nine per cent rate on the first £750,000 of gains. "It means that a company owner making a gain on a sale of £750,000 will now pay tax of £67,500 rather than £135,000 as proposed last October.".

We'll post a few more thoughts on today's changes to CGT.

As an entrepreneur, are you satisfied?

Should CGT still contain taper relief?

This story is not going to go away. So let us know what you think.

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4 Comments

January 31, 2008 3:27pm
Graham Pitman Says:

This a clumsy attempt to resolve the problem and is not a progressive tax. Entrepreneurs are likely to hold the lions share of the equity whilst other directors are likely to hold less. This will mean that directors recruited by the entrepreneur and having a shareholding above 5% in quantum but below £1M in value will enjoy tax at 10%, those with less than 5% will get taxed more heavily - which is bizarre. The main shareholding entrepreneur, without which the enterprise would not exist, faces a progressive tax regime 10% at £1M or less and 18% for the rest. All that needed to be done to prevent private equity bosses and appointee chairman to enjoy the 10% break was to make this break only applicable to full time employees. The would have truly been "entrepreneur relief".

January 25, 2008 6:28pm
Stuart Rock Says:

Clive, Has Penny's note helped? The issue of earn-outs doesn't seem to have been thought through. It's another example of the confusion that has been caused by this cack-handed display by the Treasury.

January 25, 2008 3:34pm
Penny Bates Says:

The date of disposal of the loan note will be June 2008 and hence redemption at that date will be the relevant date for CGT purposes. If the proposed changes go ahead and the gain on surrender is less than £1 million tax will be due at only 10% i.e. no worse than under current rules. This is because the proposed new lifetime entreprenuers band should apply on gains below this level. Any excess gains will be charged at 18% as will any subsequent gains on disposals of future business assets. Penny Bates, Tax Partner, Menzies (www.menzies.co.uk)

January 24, 2008 4:51pm
Clive Pollard Says:

I am not clear on the taper relief.I sold out but have still a loan note that matures at the end of June 2008.The deal and contract was done two years prior so do I pay 18% or the 10% I originally wanted to pay when I did the deal. Can anyone please clarify.