Darling U-Turn On CGT

by Stewart Douglas

Story link: Darling U-Turn On CGT

Chancellor Alistair Darling has today shocked analysts by announcing an embarrassing U-turn on the proposed capital gains tax changes scheduled to come into force in April, in a move that has been met with approval from private equity and entrepreneurial sectors.

The Chancellor today made the unprecedented announcement that he would turn back on initial proposals to introduce a flat rate 18% tax on capital gains by introducing a so-called ‘entrepreneurs’ relief’ on chargeable gains up to £1 million, which will see  tax charged at 10%, effectively catching the majority of capital gains at the reduced rate of 10%.

At present, tax is payable on most gains over the value of £6,000 made from the disposal of assets in the UK to the extent that the gain exceeds a personal allowance of some £9,000, and is usually taxable at 40%.  However in recent years there has been a generous relief on business assets up to 75% of the gain, creating an effective 10% tax rate on personal business assets.

One of the major changes resulting from today’s announcement is that most taxable gains will now be charged at 10%, which is good news for those holding significant personal assets and will almost certainly mean a decline in overall CGT revenues for the Treasury.

Additionally, it is likely that tax evasion will take on a more significant capital focus, with an increased incentive for higher rate income tax payers to shift income receipts to capital receipts in order to incur a less significant tax bill.

Whilst the move has been praised by business groups who had feared initial plans would stifle business, tax analysts have taken a more cynical approach to the decision which can only damage the credibility of Alistair Darling.