CGT Entrepreneurs’ Relief Not Enough To Restore Trust

As anticipated Alistair Darling today made final changes to the much criticised Capital Gains Tax regime by introducing a so called ‘entrepreneurs’ relief’ in an attempt to pacify the small business and startup communities.

From 6 April 2008 a headline rate of CGT will be 18%, while the current system of taper relief will be abolished.  Which brings us to ‘entrepreneurs’ relief’, an attempt to head off small business anger, while maintaining the government’s now tarnished image as pro-entrepreneurship.

There will be a new rate of 10% CGT on disposal of one or more businesses by individuals and trustees up to a ceiling of £1 million, a ceiling which is a lifetime limit to cater for serial entrepreneurs.  Qualifying assets will include trading businesses and shares in a trading business provided the shareholder owns a minimum of 5% of equity and has been an employee.  Relief will not apply to investment businesses, such as property letting.

John Wright, national chairman of the Federation of Small Businesses (FSB) while welcoming the revision to the CGT regime, said:

… the way in which the whole issue has been handled has seriously eroded small businesses’ trust in the Government. There has been huge uncertainty about what small business tax liabilities would be from April 2008 and this has made planning for the future very difficult.

There remain some significant concerns about the detail of the regime which has yet to be published.  And for many rather than simplifying CGT, the whole process has merely added complexity.

As David Kilshaw, head of private client advisory at KPMG said:

The Chancellor promised a simplified CGT system, with one tax rate. Today’s announcement has killed that hope. The new relief will add complexity. And this complexity will add to the red tape and costs for business.

It appears that the whole episode has shaken confidence in Gordon Brown’s government at a time when economic storm clouds are gathering.  Not a good political omen.