Breaking finance and business news, tax information, jobs and more for finance directors and senior finance professionals.

Economy

Adviser demands clarity on capital gains tax

Friday, 18 January 2008

Jamie Matheson, executive chairman of Brewin Dolphin, the largest independent private client investment manager in the UK, has written to the Chancellor of the Exchequer, Alistair Darling, to ask him to provide some clarity around the Government's proposed removal of Business Asset Taper Relief for Capital Gains Tax (CGT).

Matheson said that he wrote to the Chancellor out of sheer frustration that the situation around CGT is still unclear.

Brewin Dolphin manages £21.6 billion of funds for over 120,000 clients, and of this £10.7 billion is on a discretionary basis. The group has 39 offices and is corporate adviser to 131 corporate and 100 institutional clients.

“Our clients are desperate for advice ahead of the financial year end. As the largest private client adviser in the UK, we are completely hamstrung because we do not know what the situation will be after 5 April 2008,” Matheson added.

He explained that the law makes it clear that his firm must give Best Advice based on the facts and figures available to it. He said that it cannot do this at present because of the Treasury's lack of clarity about what they intend to do.

Matheson urged the Chancellor to suspend implementation of the new CGT regime until the following fiscal year in 2009.

He said that he was deeply concerned about the possibility of a false market being created by the volume of share sales which he anticipates in the next two months, if the Chancellor’s proposals are confirmed.

Matheson said he believed that investors facing the loss of Business Asset Taper Relief and looking to crystallise gains before a possible 80 per cent CGT increase, may find few buyers due to lack of liquidity and current volatile market conditions.

Brewin Dolphin reviewed its 63 AIM client companies, representing about 4 per cent of the market by number. Approximately 50 per cent of the shares in these companies were held by individuals, including founders, directors and employees or their intermediaries, who could be affected by the loss of taper relief.

“Clearly if our own experience is indicative of the rest of the market, then, for example, if half of those were under pressure to crystallise gains this tax year, then a quarter of the market could come under selling pressure over the next few weeks in an already very weak market,” Matheson wrote.

He added that he also believed that business asset qualifying investors with holdings in smaller companies quoted on the main market may amount to as much as 20 per cent of the issued shares.

Matheson said that the liquidity dynamics at the end of the main market are similar to AIM and sales activity on the scale envisaged under the new ‘Bed & Breakfast Rules’, when investors may not reinvest in the same security for 30 days, could precipitate a deeper market crash than the UK is already experiencing.

Martin Payne, director of Brewin Dolphin in Leeds added that he would normally have started the review of all our clients’ CGT positions in October. He said that he may not be able to do all the necessary calculations in time at this late stage.

“We are very relieved that our chairman has raised the matter and any response from the Chancellor cannot come soon enough,” Payne concluded.

Related articles