Chancellor In CGT Rate Quandary

In the context of a Budget that is ‘giving away’ approximately £1.4 billion in 2010-11, the Chancellor’s announcement today (24 March 2010) that he is doubling the amount of lifetime gains qualifying for the 10 per cent rate of capital gains tax to £2 million was an inexpensive giveaway, as it is forecast to cost the Government only £5 million in 2010-11. Stuart Lisle, Tax Partner at BDO LLP in Southampton commented: “I welcome the Entrepreneurs' relief change because it recognises that creating successful new businesses is the lifeblood of the economy. However, the gulf between the 50 per cent income tax rate and the 18 per cent normal capital gains tax rate appears increasingly unsustainable. It’s highly unlikely that the wider capital gains tax regime will remain intact for long after the General Election. “The difference between the 18 per cent capital gains tax rate and the top 50 per cent income tax rate will, of course, incentivise individuals to seek ways to obtain returns from their investments by way of capital gains rather than income. Perhaps anticipating this there has been an announcement that there will be new anti-avoidance disclosure measures designed to target schemes intended to avoid paying the 50 per cent rate of income tax.” Lisle added: “Ahead of an Election, the Chancellor was understandably keen to minimise new announcements on tax rises, other than those affecting the ‘top 5 per cent of earners’. SME’s will welcome this doubling of the 10 per cent band for the sale of their business but they will be disappointed that a number of other measures announced at the PBR in 2009 will cost them and their businesses in the meantime.” The Central South Report published last week by BDO in Southampton included an examination of the challenges facing growing businesses across the region and guidance on how this can best be managed to ensure the South emerges stronger from the recession. For a copy of the report please email Emma Wareham at BDO in Southampton: emma.wareham@bdo.co.uk or visit the website at www.bdo.co.uk/centralsouthreport - ends -

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