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Chancellor delays capital gains revision

Thursday, 13 December 2007

Chancellor of the Exchequer Alistair Darling has said he will not publish his revised plans until the New Year.

Darling said he was still considering consultations with various parties on the government's plans for a new capital gains tax regime.

The announcement follows a previous undertaking that he would publish revised proposals before Christmas.

The current CGT regime means that basic rate taxpayers who have held shares in their employer for at least 2 years are only subject to a 5 per cent CGT charge.

The Chancellor’s Pre-Budget Report outlined changes that would mean that these employee shareholders would have to pay an additional 13 per cent tax on any gain above £9,200 from April 2008.

Richard Lambert, Director-General of the CBI, said that he was glad that the Chancellor was paying attention to the submissions he had received from the business community.

"He needs to get on with this decision urgently, as he promised at the CBI's conference a fortnight ago. People need to be able to make decisions about their businesses - whether to invest, or whether to sell up. This uncertainty mustn't be allowed to continue," Lambert added.

Continued uncertainty

Miles Templeman, Director General of the Institute of Directors (IoD) said that the Government’s pro-enterprise credentials were seriously damaged by the original announcement in the Pre-Budget Report.

Having committed to announcing the way forward before Christmas, the Chancellor has now deferred a final announcement until the New Year. Templeman said that this will lead to continued uncertainty at a time when business owners need to take critical decisions.

"The Government should recognise the impact of this by considering deferring implementation of the changes, and commit now to a firm date on which its final decision will be announced," he said.

We can only hope that the Government will use the extra time to make the right, pro-enterprise decision. If it does so, we will welcome that. If it does not, businesses will have every reason to complain," Templeman added.

Full consultation

The Chartered Institute of Taxation (CIOT) has recommended that the Government announces that any changes to capital gains tax (CGT) should not come into force until April 2009 and that, in the intervening period, a full consultation on the proposals should be carried out.

This would enable entrepreneurs to plan their affairs with a greater amount of certainty and make decisions for commercial reasons instead of solely for tax reasons.

The CIOT said it believes this was the only alternative to the further uncertainty caused by the statement in the House by the Chancellor, Alistair Darling, on CGT.

Rob Ellerby, CIOT President, said, “The CIOT is deeply concerned that this puts many small businesses and individuals in an extremely difficult position. All businesses and individuals want to be able to plan their tax affairs with a degree of certainty. Any entrepreneur considering disposing of their business now has scant idea of the tax implications if the sale is after 5 April 2008.”

The CIOT said that the current uncertainty meant that some entrepreneurs may accelerate business sales for tax reasons instead of for commercial reasons.

“The problems highlighted are due to the failure to consult on this whole area prior to making the initial announcement in the Pre-Budget Report," Ellerby added.

Hasty proposals

PKF tax partner Peter Penneycard at the Chancellor's announcement. Darling said at the CBI conference that he would make an announcement on CGT before the Parliamentary Christmas recess. Penneycard said that he now went back on that commitment.

Even if the discussions on possible concessions to the new rules are concluded early in the new year, he believed that there would be very little time for businesses and their advisers to get to grips with the revised rules and complete transactions before 6 April 2008.

"It is clear that the Chancellor did not understand the chaos his hasty proposals would cause. While it is important that the Treasury now takes the time to think this through properly, it is no help to those entrepreneurs who were being pushed into selling their business by the Pre-Budget Report announcement of the hike in CGT for business owners," Penneycard said.

He too called on the Chancellor to delay the changes until April 2009.

"To do anything else would be manifestly unfair: entrepreneurs should not suffer to spare the Chancellor's political embarrassment," he said.

Employee share ownership

ifs ProShare, a not-for-profit membership organisation that seeks to promote the benefits of employee share ownership, argued that this would mean employees who have contributed to the success of their employers are now going to be worse off than under existing legislation.

Non-employee shareholders who have not done so are to have their CGT liabilities substantially reduced, from 40 per cent to 18 per cent.

The changes may discourage medium and long term saving through employee share ownership and could also damage the move towards wider share ownership.

ifs ProShare has therefore submitted a range of proposals to the Treasury as to how the potentially negative impact of such changes can be mitigated.

Save As You Earn

Fiona Downes, head of employee share ownership at ifs ProShare, said that a significant minority of Save As You Earn employee shareholders could be negatively affected if the Chancellor does not amend his original proposals for CGT reform.

Ifs ProShare’s research suggests that 16 per cent of SAYE participants could be worse off, that’s 272,000 employees, many of whom are relatively low earners.

Downes therefore welcomed the Chancellor’s commitment to look again at this issue and his undertaking to publish revised proposals before the end of the year.

“We hope that the delay announced will only be a short one. Whilst it’s important that the Government fully considers all proposals, employee shareholders and employers need an end to this uncertainty as quickly as possible,” Downes added.

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