Economic insight: 2008 budget

As the storm of protest against chancellor Alistair Darling’s changes to capital gains tax dies down, Mike Truman, editor of Taxation Magazine, looks at the implications for growing companies.

Before the Budget, most people selling their business would have been looking at full taper relief and a practical capital gains tax (CGT) rate of ten per cent. Now that rate will be 18 per cent unless they can make use of entrepreneurs’ relief.

Because the government put entrepreneurs’ relief together in a hurry, it’s a bit of a ‘Blue Peter’ job. It runs out after £1 million, per person of course, so you might look at splitting shareholdings between the family to make the best use of it. The other problem is that the legislation is based primarily on retirement relief, so it brings with it all the problems we’re familiar with from that. For example, if I own a property that is rented to my business at the market rate, I will not be granted entrepreneurs’ relief on the sale of that property.

The biggest problem is with planning. Changes in taper relief since it was introduced ten years ago, and now its complete withdrawal, make it impossible for businesses to plan on a long-term basis.

Having said that, 18 per cent is a low rate historically. Under [former chancellor] Nigel Lawson the effective rate of CGT was as high as 40 per cent.


Marc Barber

Marc Barber

Marc was editor of GrowthBusiness from 2006 to 2010. He specialised in writing about entrepreneurs, private equity and venture capital, mid-market M&A, small caps and high-growth businesses.

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