A speculator's budget?
Although many will see the reform of capital gains tax as an attempt to force the mega-bucks earners of private equity to pay more tax, its signficance goes well beyond that.
There will now be a single rate of capital gains tax at 18 per cent.
When John Major was prime minister in the 1990s, that would have been seen as the very epitome of a pro-capitalist reform.
But Gordon Brown when he was chancellor reformed the system so that many entrepreneurs and business creators now pay only 10 per cent tax, so long as they hang on to the relevant assets for a couple of years.
So for them, and private equity, this reform represents a steep tax rise.
However for many ordinary investors in the stock market or property, there will be a big cut in capital gains tax.
They currently pay up to 40 per cent tax on their capital gains, and that will now fall to 18 per cent.
But, interestingly, the gains are greatest for speculators, those who don't hold on to their assets for more than a few days or months.
The net impact of all this is to raise money for the Treasury - as much as Β£900m by 2010.
That probably tells you all you need to know - that most businesses will complain and see the change as anti-business.
And who knows what behavioural changes it will bring about? With the flat rate of capital gains tax now so different from the top rate of income tax, there's a huge new incentive for many of us to trade in shares and other property - at a time when there may be a bit of a bubble in these markets.
UPDATE 19:30 There was a firestorm of outrage earlier this year when it became widely know that private-equity executives pay tax at 10 per cent or less on rewards that may run to millions of pounds in a single year. Today's capital gains tax reform will push up the tax payable by some of these.
How many multi-million private-equity earners will be affected? On my reckoning perhaps 30 or 40, in a good year.
But there will also be an 80 per cent tax increase in the tax taken from hundreds of thousands of creators of small businesses, as and when they sell their businesses.
These entrepreneurs are the real dynamos of the economy. Should they really be penalised to ensure that a few private-equity plutocrats pay more to the Exchequer? Some will see that as profoundly unjust.
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Is it not taper relief that is being reduced to 18% rather than the tax rate on capital gains?
Presumably, the lowest tax rate on capital gains is intended to be in line with the basic rate of income tax at 22% i.e. 40% minus relief of 18%.
Nice one - if you have held unit trusts as we have for as long as twenty years - you now pay 18% tax when you sell instead of 40% of next to nothing after applying indexation relief.
Yet another way of by passing the basic principle of English law that no law can be applied retrospectively.
And you trust these people !?!
Pension plan in bits - Again
After saving all our lives for a reasonable retirement this is the second time Gordon has wrecked our plans - we diversified into property after his pension raids some years ago. Our income as standard rate taxpayers ( even after Capital gains)is( retrospectively) cut by abolition of taper relief -Does he ever think about the effect of his actions!
Capital gains tax has always been retrospective - you pay tax when you sell on gains made over, perhaps, several decades, subject to the tax rules in the year of sale.
I would applaud the simplification of CGT, it's always been a horrendously complex tax. However, it does seem to encourage people to chase short-term gains, which was why taper was introduced in the first place.
It also makes things worse for people who make relatively small gains - previously they might have seen them tapered to below the annual allowance, now they may pay some tax albeit at a lower rate. Similarly the relatively small number of people who were paying CGT at the basic rate with taper may be worse off.
Simon - nope, it is quite clear - there will be a flat rate of 18% for CGT from April next year.
Therefore, it is time to sell quickly any asset you might own with a decent amount of taper/indexation allowance attached.
The maximum capital gains tax rate from next year for somebody holding any type of asset for 10 years or more would have been 24% - more likely to be as low as 12%. Indexation allowance would have reduced that tax rate further.
The vast majority of taxpayers will pay a lot more capital gains tax as a result of the proposed changes.
I honestly think its pointless to look at the position of any pro business tax incentive that is not an immediate cut in corporation tax or NI. Taper relief has been in place for such a short time you needed to be VC or Private Equity house set up to flip companies to have a hope of hitting it. Building for the long turn you simply have to hope that when the day to sell comes you will be lucky with that years budget. What a ridiculous way to incentives investment!
In reply to the first comment, it is actually the CGT rate that applies to all gains and transactions. So there is now a general rate of tax on all capital gains of 18% from 6/4/08 (assuming no changes in the meantime, which is a pretty big assumption with this lot)
It's also a simplification of the tax system - does the Chancellor get any credit for that?
A person steals - who without a claim of right made in good faith, takes and carries away from the place which it occupies, anything capable of being stolen and at the time of such taking intends permanently to deprive the owner thereof.(This includes persons having lawful possession- baillees,trusts,financiers,banks etc.. but who deal wrongfully with it.
Slowly it appears that legitimate monies circulating the worlds financial systems is slowly and gradually disappearing - and passing into obscure channels and inevitably national debts remain only to be cleared by the common herd? (The legitimate tax payer)
(The French Bourse is but one seemingly typical fertile arena for investigations?)
Really! Theres an 18% tax on unit trust profits! What about ISA's?
Instead of selling my agency to some US media corporate (or to a private equity company) I am currently seeking to use bank debt to dilute my majority shareholding into meaningful shareholdings for my staff.
This change in taper relief makes the prospect half as attractive to me and to those staff who see the opportunity to fulfil their career ambitions in an independent company which they partially own.
By all means go after Private Equity but don't punish small and medium sized UK businesses who are trying to set up a cyclical model that turns staff into shareholders who can work over time to secure themselves and their families.
Cameron and co must be happy men tonight.
So if you are a higher rate taxpayer we are back to the bad old days of trying to turn income into capital gains to take advantage of the lower flat rate. Interesting to see what financial products this produces. But politically dangerous surely - does the Chancellor really want to give the buy to let market a big tax break, with tax on property down from either 40 per cent after one year or 24 per cent after ten years, to just 18 per cent regardless of how long it is held for? Since that money will simply go into first time buyer/buy to let style properties it looks like an own goal by Darling/Brown.
As above ( Charles Graham ) I fully agree! having held onto my buy to let properties to maximize my taper relief at 40% we now find that's vanished and a flat rate of 18% - how is that encouraging people to take responsibility for their old age - never trust the man who stole our pensions!!
This is a crucial change in policy and one that completely contradicts one of the primary tenets of Mr Brown's policy. I cannot understand the logic or intent to this at all. Not only is this an encouragement for speculation, but and encouragement for risk at a time when we should be managing this far more carefully. My main issue is for smaller to medium sized businesses who have invested their own capital and were rewarded for their risk taking and thier commitment over time. should we now just pump and dump! beware the unintended consequences of this move.
This is no way to encourage entrepreneurship.
Oh! God no. Would this mean more speculators will come into housing?
As with this less tax more speculation will become viable.
God! This government can never get anything right. This is what happens when you hear something somewhere (Conservative party conference) and add it to your policy within a week.
I just can't see how stupid you have to be to vote labour ever.
Please let it be that the annual capital gains allowance is to be retained.. Otherwise small investors will be worse off. Also, without taper, you will reach your allowance , assuming it is to be retained, that much earlier.
I fear the Chancellor is robbing the poor to pay the rich.
Pure anticipated election spin
Tax director at KPMG, Carolyn Steppler, said that the change "although likely to grab headlines, is in practice only giving to most people what they already have".
Hello Robert:
you say "at a time when there may be a bit of a bubble in these markets."
A BIT OF A BUBBLE??? it is the mother of all bubbles and it is about to go pop faster than you can say "regression to the mean". This is a las ditch attempt to salvaga a boat that has been sinking for some time.
Today's announcement looks really bad for small business.
Not only is the effective CGT rate on the sale of a business increased from 10% to 18% but the government is proposing to outlaw the paying of dividends or a partner's profit share to a non-working spouse.
David Cameron must be wetting himself with excitement!
As others have said - the reduction ( for most people) of CGT to 18% will encourage buy to let and share dealing. This could be a very clever move if the Chancellor expects a housing or stockmarket bubble - the lower rate of tax would encourage some to take a risk. No?
What about the simple personal investor who has held onto an asset for some years. He'll be taxed on any sterling gain without taking inflation into account.He'll be taxed even if the asset value has not kept up with inflation and he's sitting on a real loss.Remember ca 800% inflation over the last 30 years.
How does this affect buying gold as protection against the coming collapse?
What about the simple personal investor who has held an asset for several years. He'll pay tax on any sterling gain without taking inflation into account. After the annual allowance he'll will pay tax on an asset which has a lower real value unless its sterling value is less than he paid.
A retrospective tax to meet union demands
The Labour Government for the last 10 years has been no more than a WOLF in sheep's clothing.
Be in no doubt they are and have always been the "Tax and Spend" 'Party'.
They have been allowed to spin out the last 10 years creating more and more National debt (on and off the accounting sheet including such things as PFI - How much is that up to ?), Always telling us that the ever growing debt is affordable because of the on going growth in the economy.
BUT what if this growth comes to a shuddering halt ? Tax receipts from the usual sources will dip and today will be the first of many where announcements will be made to pull in tax from other sources.
Spin/lies call it what you like but when an extra 2p goes on a litre of fuel do we all believe it will help the environment or is it just additional tax collecting to shore up the shortfall(s) ?
Actually Brian I think your figures are over the top, but your underlying point is valid.
CGT will be based, in relation to an asset acquired before March 1982, on the difference between the March 1982 value and the sales proceeds.
Since March 1982 there has been a 160% increase in the RPI (so Β£10,000 in March 1982 is equivalent to Β£26,000 today).
If an asset was worth Β£10,000 in 1982 and was sold next April for Β£26,000 (so that in real terms no gain was made) the apparent gain of Β£16,000 would be subject to CGT at 18% (after deduction of the annual exempt amount).
Today's announcement removes the fundamental theory of the time value of money as far as the cost side of a capital gain is now concerned, Β£500 invested today is worth the same as Β£500 invested in 1982 when considering the profit that results.
This is sheer and utter madness!
I would imagine this will cause rampant bed and breakfasting (bed and spouse or whatever) each year to lock in a rebased purchase price?
Gordon you are quite right to keep well away from the voters. From the stupid spin of last week to the stealing of other's clothes this week, coupled with the tax on small business capital gains on retirement and your complete disregard for the chaos in the postal service. You fully deserve the ridicule and contempt that will be heaped on you in the next two years.
You had better ask Tony if he has a job for you, because No. 10 will be seeking a new tenant.
Thanks for undermining small business, we will remember you.
This is going to make investing early in AIM startups very unattractive.
It will also penalise employees with options with an 80% increase in take on them.
Business owners who started businessed in last few years are going to have to sell shares in April or pay more tax.
I don't think they've really thought this one through.
This is a 'Something and Nothing' pbr! It is saying that we are giving you Something and they are really giving us Nothing! The harm to the small and medium business owners will be immense with the new CGT proposals. On the Inheritance Tax what will happen to cohabitors such as siblings, it would seem that there is no logic to their reasoning. Roll on the next chance to get rid of this bunch of spinners, I would never vote for them.
Don't forget that the increase in corporation tax for small businesses comes in soon so this a double whammy for SMEs... On the other hand big companies will be paying less corporation tax and so the impact of the CGT changes on them will to some extent be offset..
We have just concluded a purchase of a family business which is being bought on an earn out over three years. The Vendors lost Β£120,000 in tax today over this change from their retirement fund which they have spent 20 years building up. There is nothing can be done as the deal was already signed.
How can this be fair, equitable or right?
These changes have some highly distorting effects and establish further the fact that Labour don't allow people to plan their finances in a stable tax environment, instead change the rules to screw anyone foolish enough to be enticed by the tax breaks they periodically offer
I am a serial entrepreneur who has created a number of multi-million pound businesses in the UK over the past 15 years. No more. The attack on private equity, the favouring of speculators and short termers over long term business builders. This is unacceptable.
Currently my businesses are run by management who have been motiviated by the 10% tax incentive. Now this has been ended. They might as well invest in property and stay at home. Silly silly,jealous Labour. Mr. Darling - and Mr. Brown, I shall be opening my businesses in the USA in the future and relocating my existing ones over the next 2 years.
In addition, international businessmen will now be afraid to spend a few weeks in Britain in case they now become UK resident by working here a few days per month. Together with the appalling travel conditions at airports here, this will lose the UK treasury a few billion pounds.
I used to vote Labour. Oh well, history teaches us that politicians become arrogant and blind after too long in office.
Good luck Britain - I am off. You are welcome to your police state, your cameras, your ASBOs and your tax system.
Welcome UK - here comes the return of 1970's socialism, this time backed by technology and a desperate bunch of jealous chickens with blood on their hands from Iraq. Vietnam and stagflation all over again.
I have to agree that this is a truly negative move for the larger economic prosperity of the nation. The engine of growth (small & medium sized business) are being penalised at the expense of 'speculators'... or 'investors' as I would rather be known.
I make my money trading the stock market with my own cash... and have to say this is a great announcement for me. But I do feel it's negative for UK a whole.
It seems to me the chancellor would have been much better adding a maximum limit to the 10% band of taper relief to target the real big earners... that's who he was after. He does also seem to be rewarding buy-to-let investors.
In terms of a 'bubble'... Housing will grind to a halt and is expensive by almost any measure. As for the stock market, well Robert, much as I respect you, some of your blogs were edging towards predicting the end of the world and a huge bear market a few months back. I begged to differ at the time and looks like right now I was correct. I don't feel this is a bubble. I think the markets have got a good way further to go yet. Blue chips are cheap, the feds aggressively cutting rates. Robert and Juan "don't fight the fed".
this is a total joke. I have spent the last 8 years of my life out straight out of school building up a business to be worth around Β£15-Β£20m only to find out that that total twat gordon brown is going to steal another 8% of my hard worked money. I employ 25 people and want to keep them working, but to be honest i feel like selling up and fucking off out of this ridiculous country where you are encouraged to be a nobody, and practically told how to live and spend your money. HOW MUCH LONGER BEFORE WE START STANDING UP AGAINST THIS TOTAL OUTRAGE.
Re anyone moaning about buy to letters benefiting from what will now be a fantastic new boom in this area following reduction in CGT rate to 18%.....Tough - more dosh for me ha ha ha.
Can a government still have to go cap in hand to the IMF or is this not now possible?
In response to Margaret it won't encourage people to invest in property. Many who have owned a property for several years will now be looking to sell the property with the lower rate of captial gains tax they have accumulated with taper relief soon closing. This will allow them to reap the benefits of the high increase in value of the property while paying the least amount of capitial gains tax at a time when house price growth is slowing and avoid paying rising interest rates on a buy to let mortgage.
If anything it could create a run on the estate agents as owners try to sell second homes as house price growth stalls and interest rates rise.
Have they abolished indexation because it takes too long to train the Civil Servants?
I will now be cutting back on all my investment plans in the UK. Probably put at least one business in the UK into administration and export the jobs offshore as well as my returns.
I will gain at the expense of the UK but see no point in further loyalty to this country when the rules are just changed. I can only imagine how many others will do the same.
It is a shame that jobs will be lost in this country, but I have a choice of where to invest my money and time and the Government just made it an unavoidable one.
I have always believed in paying fair tax and supporting UK jobs, it does not seem fair to change the rules on long standing investment in building a UK business.
I don't expect anyone to have any sympathy for entrepreneurs, but the reality is that this is where job creation comes from. Without fair reward for significant risk we will just move elsewhere.
I was hoping for some form of tax changes to penalise buy-to-let investors and help first-time buyers, but instead we get the opposite. The tax changes are a free gift to buy-to-let investors, who have already done very nicely at the expense of unfortunate first-time buyers that are priced out of the housing market.
Why exactly should small businesses be taxed so lightly? Yes, they are hard work, but so is doing an employment job well, and that gets taxed at a quite exorbitant rate with little opportunity for write-offs of expenses. It's fine with me if the tax rate on gains by small businessmen goes up from 10% to 18%. They should pay their share.
Echoing Brian Harding - if there really is no indexation then the chancellor is taxing inflation - either genius or unbelievable
If someone regularly engages in "speculation", holding shares or other securities for a few days before selling at a profit, they are probably financial dealers and their profits are trading profits - which would be liable to income tax and not CGT.
Like many of your other correspondents we will be clobbered by the abolition of taper relief. We are not speculators but inherited a house some 15 years ago which we have kept as a form of pension. The amount of capital gains will now have to pay on any sale will seriously reduce our standard of living. The abolition of the 10 percent tax rate by Bottler Brown was already giving us cause for concern, this is the giddy limit. How I absolutely hate this so called socialist government!
A contrary view. this could cause house prices to drop significantly as BTL speculators rush to sell and get out of the market in which they are currently making trading losses
The very last nail in the coffin for trying to build a business rather than maximise profit and sell quickly to the detriment of staff and customers. And no incentive to set up staff share purchase schemes. What an utter mess.
OK, can someone explain something to me? I run a small business, and I've been toying with the idea of setting up an employee share scheme as a way of encouraging my staff to stay with the company.
Will this still work, or has Darling scuppered my plans?
80% tax hike? Tabloid headline or what?
The fact is, previously you got to keep 90% of your money - now it will be 82%. That is approximately 10% more of your money going to the chancellor.
The only reason you get to claim a huge headline of 80% was because the rate was so low to start with.
What a joke reading the press this morning who seem to report the tax change issues like sheep.
With regard to IHT I can't believe no one is pointing out that this tax is simply a headline grabbing exercise considering Β£600,000 is the rate that any couple already receives by simply altering one line in their will?
With regard to Private Equity bosses they have again been let off and the new CGT rules will hit the small business owner and those looking to start up new companies.
What a disgrace and an insult to be told that they have stolen the Conservatives ideas when the IHT announcement is a sham and the CGT proposal was not suggested by the Tories.
I have to agree that this is a truly negative move for the larger economic prosperity of the nation. The engine of growth (small & medium sized business) are being penalised at the expense of 'speculators'... or 'investors' as I would rather be known.
I make my money trading the stock market with my own cash... and have to say this is a great announcement for me. But I do feel it's negative for UK a whole.
It seems to me the chancellor would have been much better adding a maximum limit to the 10% band of taper relief to target the real big earners... that's who he was after. He does also seem to be rewarding buy-to-let investors.
In terms of a 'bubble'... Housing will grind to a halt and is expensive by almost any measure. As for the stock market, well Robert, much as I respect you, some of your blogs were edging towards predicting the end of the world and a huge bear market a few months back. I begged to differ at the time and looks like right now I was correct. I don't feel this is a bubble. I think the markets have got a good way further to go yet. Blue chips are cheap, the feds aggressively cutting rates. Robert and Juan "don't fight the fed".
Well I'm a business owner and I have to say this is the straw the broke the camels back. Being a small business is struggle enough (wage demands to meet rising house prices, covering maternity and paternity requirements, bureaucracy, etc etc) but you feel hopefully one day you can get out a bit more of the pot because of what’s been put in. Here, because of a few headline grabbing equity firms which deal in billions the SME’s have been hit and hard – an 80% (!) rise in the tax. I will hear the voices of those who say β€well you must be well off if you can sell a businessβ€, but its starting to get to the point where many entrepreneurs can probably do almost as well working for a corporation without much of the hassle and so the rise and rise of the big corps will continue and according to a recent news item its many of these companies that get away paying nothing!
Thank you for appearing to be one writer who didnt overlook the impact this will have on Small Business owners. Many small businesses do not take out large salaries and bonus payments because they need the cash to fund the business for growth. They were rewarded for those years of considerable committment to job creation, and for many, a way of life in good family companies.It was not originally designed to allow the asset stripping Vulture Capitalists to hang in for two years and reap dubious rewards. To cure that, all that was required was to make sure assets were held for ten years.Perhaps small business owners should get out now. Another ill thought through reaction from an inept Government.
#47 Stephen - I think you are right. If BTL's previously got tapered relief (and their properties have gained in value since they were purchased) they now have a huge incentive to sell before the new rate kicks in, and get shares instead. 8% additional tax on a property portfolio that has doubled in value, that's 4% of the total value.
Unbeleivable - Yet another peice ill thought through legislation that effects a far wider audience with far more serious implications than for those few private equity investors it was aimed at.
It is unbelievable how, with all the resources available within the treasury they can get things wrong with such unbroken consistency.
Jim Collier
This is a nightmare, it is communism wrought in the UK in 2007.
No indexation allowance.
No taper relief.
Result: no investment in private rental property; increase in shabby council housing and massive increases in rent arrears to councils. All this will do is increase the size of the underclass in the same way as more roads means more cars.
This is good news for Labour as the underclass all vote Labour? Social mobility needs tax Incentives not demotivating tax grabs.
Come on Cameron make mincemeat out of this lot they are handing you the top job on a plate.
I saw this coming years ago and moved my internet business to Dubai in 2005. The problem in the UK is demographics. Economic policy panders to baby-boomers because it is such a large part of the voting population. That is why free university education was cancelled after these guys and their kids had finished with it, pensions have been ramped up and entrepreneurial tax is doubled while inheritance tax is being relaxed.
It's a pretty clear pitch. If you are young and want to start a business so you can create wealth and afford a house, then forget it. If you're an old, rich, property owner and are going to die soon, then you're in right place.
The CGT change was a result of already massively wealthy PE investors boasting they paid less tax than their cleaners. They are now getting a little of what they deserve. The fact is there should have been a massive retrospective levy on these self satisfied folk. They'd already made their pile and don't care about their successors. Neither do we but the 1st generation should not have been allowed to remain so smug.
Personally I think the abolition of taper relief is justified as it had resulted in distortions in the way people were taxed. It was not just the private equity industry that took advantage of this but also members of share incentive schemes got a benefit from keeping shares in the business they worked for. It is in the these cases that the concept of a business asset didn't make senses, these were not assets that the individual had worked hard to build up as a business, rather assets that they had acquired as a result of their employment and hence were more income in nature.
Also I think that Robert Preston's estimate of only 30-40 rich private equity people being impacted is way off the mark. I have been told in the past that there are over 100 people in private equity in London that make over Β£5m a year, and I would expect the vast bulk of this is from carried interest. From the point of view of the impact of increased taxation on members of share schemes, the number of people affected would be in the thousands.
I agree that it will negatively affect small business, but then no-one should be going into a business on the basis of a 8% tax difference!
All rather irrelevant to most of us really.
The majority of people in the UK are struggling to get by and aren't in a position to "trade stocks and shares", so this is an irrelevance to most of us.
Oh, and we've got an economic downturn to look forward to. Mainly because the very rich and greedy decided to add "stupid" to rich and greedy by lending vast sums to poor people with awful credit histories who had no chance of repayment, thus creating a credit crunch.
Thanks for that.
If I understand this correctly:
In the budget Brown increased corporation tax from 19% to 22% over 3 years.
Now if we sell the business the tax has increased by 80% from 10% to 18%
Plus those of us incentivising our employees through share options now find that those options attract tax
Plus those of us who work hard to retain our staff thorugh incentives and enhanced benefits find that they attract tax in the monthly payroll
So for service based small companies this is all very bad news. Please tell me I have this or even some of this wrong
So because the Government is mismanaging the economy by borrowing more than it can afford it is taking it's revenge on well managed small businesses - charming
OK, so now it's MUCH better, easier, more flexible and safer to frequently trade second hand bits of paper (share certs) money and effort....than invest in the engine of growth.....our SMEs and start-ups. I am no longer going to take massive medium to long term-risks in the emerging business technologies and ventures that are VITAL to the future of this country. The new CGT rules are a gamblers' charter.....and substantially remove SME investment initiatives ....and the jobs, wealth, hopes, aspirations, not to say government tax revenues (my SME investments have generated Β£50m of additional tax revenues in PAYE, NIC, VAT, Business rates, duties and CGT for this country) of those who strive to make the disparately needed changes to keep this country competitive.
We have a government that is untainted by commercial experience and duplicitous in the destruction of opportunity.
SOME will see that as profoundly unjust? Try MOST, Robert. It IS unjust. It's bad enough that Gordon Brown shafted small businesses by killing the Β£10,000 limit on 0% tax for small businesses, now we get to pay 18% ON TOP when we sell our company.
Even winding it down won't help because it still falls into capital gains tax if the business had assets that are transferred to the shareholders.
Thanks Alistair, thanks for nothing at all.
I wonder if this CGT move is to give certain Labour luminaries a way out of their buy-to-let portfolios before an anticipated property crash?
Next week I was due to put some of my hard earned cash into a small university spin-out.. Not now.
Its been pretty obvious for a while that Gordon Brown and Darling would hammer small business and entrepreneurs whilst pandering to speculators and "Buy To Let"-ers. We moved our software business to Dubai 3 years ago. Zero corporation tax, and zero income tax. And sun and a pool too. Frankly I'm staggered anyone is left running a company in the UK, it just isn't worth the bother. Get out while you still can.
For the vast majority of investors, since 1998 your capital gains tax rate on assets held for more than 10 years has been 24%, not 10%. 10% was only available to a select few who held certain types of business assets - cetainly not unit trusts, listed shares, or property.
Assets held in ISAs, PEPs, and other types of pension investment scheme like SIPPs, are not subject to any form of capital gains tax.
For the majority of people in the UK, investing for their retirement, this is a tax cut not a tax increase.
Spencer - so you have managed to make 20 million pounds in 8 years. Congratulations (no irony intended). I, too, have worked very hard since I left school, and have made considerably less than you. But I have paid a much greater proportion of this in tax than you will pay if you sell your business - as has virtually everybody else in the UK. Given that you are actually way better off than most people, can you explain why you should pay less tax?
Taxing businesses that could still use indexation, and private individuals whom benefited from indexation before 1997/1998 and taper relief since seems rotten and unfair and against long term thinking and financial planning to say the least; anti-entrepenuers and those that do good by wealth creation into society. Can they not still phase the new rate or delay the implimentatin so as not to hit those whom had planned sensibly under the old tax rules?
Has the small print meant that the annual CGT allowance has also gone?Genuine profits over and above inflation are fine to be taxed at a lower flat rate, but not just any gains. I cannot believe the Government would really be so stupid and unhelpfull as to guise a headline rate reduction percentage as a cut when in reality it will be a massive great increase for many, and expect we just have not seen the actual detail.
Headline grabbing transferablity of the Β£300,000 alowance on first death for IHT strike me of just maximising spin, but must be a good idea. Watching television for the headline news I know a commentator was saying Brown could hardly guise his smirk in Parliament yesterday when he knew Darling was going to announce the idea thefts from the Conservatives, but perhaps it was another emotion he was guising. If Labour is sensible and fair in the way they steal the ideas from the other political parites, then I feel sure they would curry much more favour and support from the public.
Employee share incentives being clobbered by tax hardly help Small and Medium Sized companies that used to be the backbone of UK plc, and which made Great Britain Great. This contrasts with easy to control large companies that dominate much of the rest of Europe. Thus the double whammy of extra regulation and State control and red tape with increased public sector index-linked pensions to pay (inclusive of MP's final salary schemes)that Labour seems to wish to perpetuate, financed on their debt expanded growth hardly helps.
Equally, the penalising of husband and wife and cousin teams of small firms seems a reaction to a lost HMRC case recently, and surely is not going to be as bad as the headlines make out. What is the small print?
What tests for non-dom's being put off working here or setting up work and employees here are not clear to me yet. Certainly although it closes down some abuses one suspects overall it will not be at all good for job creation and faith in her magesties governments dealings by forigners who would have otherwise wished to set up here.
I can see investors may make short term stockmarket gains, and buying to let speculation could in theory hold up the equity markets and housing markets during the economic slowdown when it hits next year, (after many exiting the buy to let market quickly now), but surely the most indebted European nation should be encouraging long term planning and investments rather than just get rich quick schemes.
Would have been better to have seen reductions in emloyers NI and increases to employees NI, and to have taken on board the Conservatives ideas on the 16 hour rule for those wishing to get back into work, and to have doubled the amount people can make before they loose thier various benefits and plan to phase out the various family and working and pensions credits whilst increasing the personal income tax allowance.
Why cannot they have done something radical such as say that no Civil Servant or Public Sector worker can have pension paid greater than the amount to get them out of "poverty" Β£12,300, without the Civil Servant or Public Sector worker having to top up the difference by funding (if it be employer and minimum 6% employee)into their own defined contribution scheme? Bingo, overnight, the policy setters and politico's have to be part of the market the rest of society are in, not pretending to be dispassionate observers with no vested interests.
In theory, much of the rest of the headline grabbing anouncements sounded good - increases for education, defence, overseas aid etc. In practice, we have got so used to spin and anouncements which actually guise the reality on the ground or previously been anounced anyway one is left wondering if they have actually done any good at all in their anouncements other than trying a confidence trick.
The sell off or leaseback of Government owned property seems deeply suspect; whats the betting they will have to be buying back at much higher prices much of the asset book they are currently wrecking. Example such as their selling the Gold reserves at the lowest possible prices have not helped. What other balance sheets will they look to trash next?
So much of what this Government anounces sound good at first. How can we get the son of a man of the manse to start being honest and fair and actaully do good for the poor and rich alike, in the long term interests of UK plc. We have an aging populous without the good pension provision in place for the majority, although a minority will be significantly better off than previous generations in their retirement. Perhaps the anouncement of the getting rid of the means test for Care home and Care homes with Nursing may help if it is not just another spin and has no substance in reality; has anyone seen the detail?
And yet, for the few, we are growing the greatest number of High Net Worth Asset individuals than at any other time, and a phenominal increase in higher rate taxpayers. How to simplify things such that these beneficiaries give more back into society, in terms of jobs, charitable giving, stewardship of the environment, soical justice, and a sustainable economy transferring away from a petro-chemical society to communities that care and share?
Pray for this Government, join a political party and use your voices and experience to try and change things for the better. There may be time to change for the better the detail of some of the headline grabing off the cuff instant policies that Darling anounced if enough people take action and speak up. Make constructive criticism, take action and do not carp from the sidelines.
OK, hands up, which one of us higher-rate taxpayers is now going to put our money into savings (with a 40% tax rate) rather than some rolled-up capital-only bonds/instruments with just 18% liability tax (less than the basic rate of tax!). If this government was trying to encourage bank savings and help restore liquidity to the beleaguered banking sector, it has just fired a life threatening broadside at the already perilously unstable ship, which ridiculously the government is guaranteeing with OUR money. Yes, come April 2008, like most, I will be withdrawing all my savings (taxable at 40%) and find secure and redeemable capital-only investments (taxable at 18%). We've truly moved from an age of hope to one of fear. I can hear the bears growling as I type.
Mr. Peston's analysis has absolutely hit the nail on the head - this "reform" has very little to do with Private Equity, and alot to do with raising revenue. It also creates perverse incentives, i.e. you pay the same rate if you make a quick buck (e.g. asset strip, and resell a company in a matter of weeks) as if you are an entrepreneur starting a company that grows over 5, 10, 15 years employing more people and paying more tax, and when you finally sell you will now pay 80% more tax, even though you've held the asset for a significant period of time. These entrepreneurs play a key role in the economy, yet are being penalised for their hard work. It is yet another instance of this Government's use of a blunt instrument, that creates more problems and undesirable incentives than it solves.
It's interesting that so many self-styled hard-working small businessmen commenting in this thread are concentrating on selling their businesses. Perhaps if they focussed on increasing profitability rather than making a fast buck by selling on they'd be less wound up by what is actually a small rise in tax.
On the buy-to-let front presumably the 18% rate will be one less barrier to selling in a slowing market and will release more housing rather than increase demand ?......
Tricky situation for Brown and Darling who are playing middle politics than taking a side and it would get beating from both right and left.. good Luck and surely the next election would be about anti incumbency!
I haven't seen the small print on the 18% CGT but if I take this at face value, surely this is going to force certain behaviours between now and April 2008! 1. Those who can presently benefit from 10% CGT will seek to sell their assets before then; and 2. Those who would be paying more than 18% now, will hold-off selling assets until April 2008 to benefit from 'only' 18% CGT. Whether you agree with this or not, should this not have been introduced from 1st October 2007 to prevent the frenzy that could ensue?
"The marvel of all history is the patience with which men and women submit to burdens unnecessarily laid upon them by their governments."
William H. Borah
I've just torn up a cheque for Β£65k which I was on the point of investing in a company desperate for cash as (a) their bank (and all banks) won't lend anything to anyone (unless they don't need the money) at present (b) the Small Loans Guarantee scheme has stalled completely. So, it looks like goodnight and goodbye to a 10-person fledgling company... the first casualty in this new 'war'?
Private Equity tax avoidance is an excuse, no more no less. The amounts involved are peanuts in the overall scheme of things. This is a naked tax-raising ploy. Forget who will benefit, the abolition of indexation and taper relief will bring much more of any gain into charge for CGT. The actual increase in liability is likely to be vastly in excess of 80%.
Now that's the sort of point I would have expected a genius like Robert Peston to notice...
My father died 7 years ago and directly passed money to the 3 of us children. My mother died just over 2 years ago and passed on her estate again to us 3 children upon which we paid some inheritance tax. This was neatly arranged by our solicitor to take full advantage of both my father's and mother's inheritance tax allowance. We still paid about Β£60,000 in inheritance tax in total. Do the new 'retrospectve' measures mean we will now be able to claim this back? If we had not benefited from this artangement to take advantage of both parents inheritance tax allowance, would we have then been able to claim tax back?
The 18% rate is an economic fiction. It is an 18% rate on increases in price, as well as real increases in value. In other words, Darling has given us a tax on inflation.
So rather than rewarding long term investment, which was what Taper Relief was supposed to do, he is in fact penalising you for holding assets longer.
Interestingly, if you had owned an asset since April 1998, when indexation was scrapped for individuals, and sold it in April next year, once taper has been abolished, the tax you would pay on the real value gain, as opposed to the inflationary gains, would be approximately 23%, i.e. a tax rise for basic rate taxpayers.
This proposed CGT increase will completely miss the private equity mark, as they will simply transfer the gain to offshore holding vehicles.
LP and others. The point you are missing here is RISK. In my experience people either understand the concept or not - hard work is not the same. I could loose everything and the 10% Tax rate is one reason to take that risk.
It always amazes me how people with zero experience of something are happy to comment on it. If you have never run a business with your own money on the line don't comment on how hard or easy you think it may be.
I like most entrepreneurs have had a regular job and therefore feel qualified to comment on the difference between the two. I know who goes home and sleeps at night and enjoys their weekends of leisure!
In any event it matters not who is right and who is wrong - everyone looses if business builders and employers choose to do something easier and less stressful than employ people.
Post 19 by J. Hallsworth quotes
tax director at KPMG, Carolyn Steppler, who said that the change "although likely to grab headlines, is in practice only giving to most people what they already have".
Perfectly true.
However, she was talking about Inheritance Tax not CGT! See
on this Βι¶ΉΤΌΕΔ website.
I note a number of posts regarding the impact on buy-to-let investors. As Dondon mentions (#68), residential property is not a business asset for taper relief purposes and so residential property gains will not suffer CGT at the 10% rate in any case. Depending on length of ownership, and ignoring the annual exemption, other gains, etc, a higher rate taxpayer will currently suffer CGT at between 40% and 24% on such gains. Basic rate taxpayers will pay between 20% and 12%. This Government seems to have an unfortunate track record of a) knee-jerk tax legislation and b) targeting the wrong people, and this is another example I fear.
As LP wrote, those that who have zero experience of something are happy to comment on it.
At over 60 years of age, running a small company and after 30 years of 6 and 7 day working weeks, for most of those years not taking annual holidays, taking a salary that has remained exactly the same gross cash amount since 1984 - Yes I was well paid in the 80's and early 90's - of investing time, health and money into the business with the intention of having a reasonable standard of living during retirement, which I could have taken at any time between the age of 55 and whenever. I have now decided that to continue to work, to generate more income for this amateur, thoughtless Government, is just not worth it. I'll dispose of the assets in the most tax efficient manner and retire as soon as convenient. It is just not worth the hassle any more.
I guess penalising a small proportion of the electorate is helpful policy for winning elections. However as someone who has spent the last four years without salary building a technology company from scratch for rewards in equity and encouraging others to assist in the same way while the company cannot afford to pay them market rates, I feel this move is appallingly short sighted and may have the opposite effect to that desired. This development model will no longer work effecively and innovators will be forced to accept even more expensive, highly dilutive capital from VCs. (If the government thinks the VCs will take the hit, they are wrong, they will just try to recover it through ever more aggressive deals with small companies desparate for finance). This country is already very poor at supporting small growth businesses and I predict further stifling of innovation.
As one of Robert's small business entrepreneurs I gave up a good job with a pension and spent the next 5 years building up a business to the point where I could take a salary. My family saw a reduction in their standard of living and my wife and I got a whole lot of stress.
I am now going to be stuffed for a whole load of tax both corporation tax and CGT because I took a risk. I am sure that this is only the start. What is more it looks like I will not be able to attract good people or reward my staff with share options
This is a government that has decided to discourage people like me these "reforms" will act to slow the economy and stuff the little guy while the fat cats will find a way round the problem like they always do.
Well done Gordon this will be the most expensive tax rise you have ever inflicted on the economy.
Relax. Darling and his dunderheads will simply make a U-turn when they read and hear the reactions to their CGT reform plan. Remember the "residential property in SIPPs" fiasco?
The point has been made many times but what we have now is a tax on inflation, which is extraordinarily damaging to any business reinvesting profits for growth as the effect compounds over time. However, I disagree that this is the most expensive tax rise that has ever been inflicted on the economy - for manufacturing industry that was the tax depreciation rule changes last budget - I regularly appraise capital investment projects for the UK quoted manufacturing company I work for and the post tax returns on UK projects are now so far below those in Eastern Europe, and even France(!) that I cannot see us investing here in any meaningful way again. That being the case, we are beginning to wonder why we are headquartered in the UK.......
Try working some examples and commentators will soon see that the loss of Indexation Allowance as well as Taper Relief can lead to increases in tax of much more than the figure of 80% as the press are stating. Many small businessmen have held assets for a long time and Indexation from March 1982 to March 1998 more than doubled the base cost of assets!
Does Mr Darling understand what he has done?
As a small family business established over 30 years ago,we are disgusted by the chancellor's Clunking Fist, which seems to have landed once again on small firms. Small business owners are not only creating their own jobs but are often much more sympathetic employers than large firms. Not one of our family has ever claimed unemployment benefit or sick pay - and not because we are any healthier than anyone else. We also take fewer holidays than our staff. We also have a lot to lose if we break the law, which keeps us mostly on the straight and narrow.
On another point - how can income transfers between spouses to even out taxes be 'avoiding tax' (I take much less than my husband, incidentally). If the couple were to divorce, the (less financially active) wife often makes claims on half her husband's income/property, so why not spread the tax, too??
If you are opposed to the proposal to withdraw CGT taper relief, you can now sign a petition to the Prime Minister that has now been set up:
We the undersigned petition the Prime Minister to keep the CGT taper relief as a major incentive to enterprise.
I've just heard Robert Peston talking about the CGT changes on the Today programme - saying that there is no incentive for (for example) employees of Marks & Spencer to hold on to shares acquired through employee share purchase schemes.
I can't decide whether he (Peston) just doesn't understand how CGT works, is being partisan in his criticism or is just paid so much that he doesn't realise that most ordinary people would never breach the CGT allowance (Β£9000) on their share transactions.
With Buy to let owners seeing the value of their property fall and facing a decision as to whether they should sell up or ride the storm... this CGT at 18% may just tip the balance and push more owners to sell up, before April, further flooding the market with haoses and forcing down property prices. Look like one in the eye for the Gov. they will fuel the bursting bubble as it goes prom a Pop! to a very great BANG!
All I say is the first ones to sell do so quickly, they may be fortunate enough to find a buyer, but they will have to move fast! There is going to be a lot of property on the market soon....
I managed to read in detail all the blogs following the original piece but had to give up at no. 80. Much of what was said makes a lot of sense but also a lot of misunderstanding (corrected by others ) I was going to say more myself after reading the replies in 2007. However I now see some people have no understanding of how it feels to work 7 days a week. Man and wife and risking every penny we have to build up a business to retire on - only to have it stolen from you at the end. I have now decided to leave this country and take up full residence in spain and sell all assets here in the UK. I am still proud to be British but enough is enough. The building we refurbished with our own money we have held for over 25/30 years now we must consider selling in a rush before the end of this tax year !!!
I hate the bastards that run what is the best country in the world but not the best to live in any more.
P. Hodgkinson. Preston