Capital Gains Tax / Taper Relief Changes 2008

New UK Capital Gains Tax Regime and Implications for Business Sales in 2008

In an unusual show of unity, UK business groups have attacked Alistair Darling's plans to do away with Business Taper Relief from April 6th, 2008. In its place will be a flat 18% rate of capital gains tax, with a small one-off concession to entrepreneurs whereby the first million pounds of gains are taxed at 10%.

The close relationship that existed between Labour and the business community forged by Gordon Brown in his early years as Chancellor now looks to be in near tatters.

Here is a rundown on the current CGT situation and how it has changed. Up to April 5th 2008, if a business has been trading at least two years, upon selling it attracts the maximum taper relief rate of 75%. Now, for higher rate taxpayers, this represents an effective CGT rate of 10%. For basic rate taxpayers it represents an effective CGT rate of 5%.

In other words, selling a business for £10m meant surrendering £1,000,000 to the government upon sale. Not too onerous, and represents a fair return for the business owner, who in most cases has worked harder than average and has contributed much personal income tax, corporation tax, VAT, and National Insurance to the government coffers over the years.

However, after April 5th 2008, the business owner in this example will have to pay the government £1,700,000 in capital gains tax upon sale of the business, representing a whopping tax rate increase of 70%.

Many would agree the the CGT system, a real mess of allowances, rules and tapers, was well overdue for an overhaul. However much of the complexity is due to this very government. It was either naiive or plain stupid of the government to commit to a sweeping rewrite of the whole system without any consultation with interest groups whatsoever, and this stand-off approach has added to the wide chorus of disapproval. A tremendous number of businesses in the UK have been started and funded on the basis of an eventual trade sale exit with 10% CGT, and a hike of this magnitude has completely indermined the incentive of the owners to commit to future growth.

So what are the important points to note if you are a) planning to sell on or before 5th April 2008 or b) planning to sell after April 5th 2008 ?

In our in-depth article on the subscribers section, written in consultation with our panel of experts, we will take you through the options, point out the pitfalls and give you tips that could save you literally hundreds of thousands of pounds in capital gains tax.

We will show you ways to effectively extend the government's capital gains tax deadline by a year or longer.

Understand the seven immutable strategies that once implemented, will enable you to sell your business at a significantly higher value.

The full article is available to our paying subscribers. Subscription costs only £195 for 12 months.

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