PBR Capital Gains Tax Taper relief scrapped
Discussion
My understanding is that he's scrapped taper relief and introduced a flat rate of 18%.
A total knee jerk reaction to the pressure relating to private equity bosses exploiting it.
A total knee jerk reaction to the pressure relating to private equity bosses exploiting it.
- The unions aren't happy because the PE bosses are still paying a low rate of tax.
- Business owners will be livid with him.
- PE bosses will be laughing their tits off at getting away so lightly.
wattsm666 said:
There will be a flood of business disposals before April 08 when this kicks in.
Indeed. for me it's likely to be a time of massive harvest and then (potentially) famine for a bit! What he should have done is simply increase the time of the taper clock (currently two years) to say five or more. This would not have hurt many company owners but would have derailed the PEs.
Also, more companies will now go to the wall because the PEs will be less motivated to rescue them and turn them round.
And the real winners? Clever Tax Scheme Advisors. They've never really bothered targetting business owners because people weren't too bothered about paying 10%. 18% though, is a different matter.
These drip of constant tax increases for small businesses is really starting to pee me off.
In the last few years NI up, Corp Tax up, Taper relief gone, fuel charge up, various new employment legslation and no doubt many more I can't remember. I reckon it has reduced retained profit by 5%.
If you now dispose of a business another large percentage gone.
Do they just assume a small business owner will vote Tory so they don't care. What are their thought process to hurt SME like this? Where is the logic? We are creating wealth & jobs.
In the last few years NI up, Corp Tax up, Taper relief gone, fuel charge up, various new employment legslation and no doubt many more I can't remember. I reckon it has reduced retained profit by 5%.
If you now dispose of a business another large percentage gone.
Do they just assume a small business owner will vote Tory so they don't care. What are their thought process to hurt SME like this? Where is the logic? We are creating wealth & jobs.
Greenie said:
These drip of constant tax increases for small businesses is really starting to pee me off.
In the last few years NI up, Corp Tax up, Taper relief gone, fuel charge up, various new employment legslation and no doubt many more I can't remember. I reckon it has reduced retained profit by 5%.
If you now dispose of a business another large percentage gone.
Do they just assume a small business owner will vote Tory so they don't care. What are their thought process to hurt SME like this? Where is the logic? We are creating wealth & jobs.
Dont forget things like IR35 as well THis In the last few years NI up, Corp Tax up, Taper relief gone, fuel charge up, various new employment legslation and no doubt many more I can't remember. I reckon it has reduced retained profit by 5%.
If you now dispose of a business another large percentage gone.
Do they just assume a small business owner will vote Tory so they don't care. What are their thought process to hurt SME like this? Where is the logic? We are creating wealth & jobs.
ing government want us all working for tescos and capita Bastards...Oh yes, but isn't it far better to squeeze and squeeze and then release a bit - making things all much better??? 
Let people think we're going to raise taxes by 5% then once the shock and horror is over announce that it's only going to be 2%.. Everyone feels that they got off lightly and are "happy" - it's a great tactic and is played quite often.
The thing I keep on constantly thinking about taxation is that the more you squeeze and restrict, the more it affects the
middle, whereas the top avoid it (legally) and the bottom avoid it... Leaving the burden greater on the middle and more
people put more effort in to ways to reduce their taxation.
If you relaxed things and made them more simple, then people couldn't avoid it or take this off and that off for certain
situations and they'd find that they'd get more revenue. This has been shown to work in a few country's which now have
flat rates of tax. No tax "breaks" or discounts, then people pay a percentage, those earning more pay more, end of. Easier to administer, easier to understand and easier to collect.
I think the biggest problem is that Gordo et al are attempting to pursue some kind of idealistic approach that people won't
try and circumnavigate the system as it makes it all more complicated and provides chances to work the system from all sides.
They've run out of ideas and are going for vote winning dictums...
rant over!
Let people think we're going to raise taxes by 5% then once the shock and horror is over announce that it's only going to be 2%.. Everyone feels that they got off lightly and are "happy" - it's a great tactic and is played quite often.The thing I keep on constantly thinking about taxation is that the more you squeeze and restrict, the more it affects the
middle, whereas the top avoid it (legally) and the bottom avoid it... Leaving the burden greater on the middle and more
people put more effort in to ways to reduce their taxation.
If you relaxed things and made them more simple, then people couldn't avoid it or take this off and that off for certain
situations and they'd find that they'd get more revenue. This has been shown to work in a few country's which now have
flat rates of tax. No tax "breaks" or discounts, then people pay a percentage, those earning more pay more, end of. Easier to administer, easier to understand and easier to collect.
I think the biggest problem is that Gordo et al are attempting to pursue some kind of idealistic approach that people won't
try and circumnavigate the system as it makes it all more complicated and provides chances to work the system from all sides.
They've run out of ideas and are going for vote winning dictums...
rant over!
I'm given to unbderstand that deferred payments (earn-outs, loan notes, etc..) if completing after April will be paying 18% Tax. That is plain wrong in my view. If someone made a decision to sell their business last year and as part of the consideration there was a perfomance related mechanism, they then work out the post tax earnings only to find they change. I reckon there will be a fair few vendors trying to re-negotiate deferred payments in the next few months.
srebbe64 said:
I'm given to understand that deferred payments (earn-outs, loan notes, etc..) if completing after April will be paying 18% Tax.
Just got off the phone with my accountant who has confirmed this to be the case ref the upcoming ICI takover (expected to go through in early Jan08). You should see a lot of private investors taking the loan notes and redeeming them in the 08/09 tax year.PetrolTed said:
My understanding is that he's scrapped taper relief and introduced a flat rate of 18%.
A total knee jerk reaction to the pressure relating to private equity bosses exploiting it.
I was quite interested to see an apparently unrelated story stating that second home owners in Spain will be pleased to hear that the capital gains tax for them has been bought into line with the Spanish flat rate of 18%.A total knee jerk reaction to the pressure relating to private equity bosses exploiting it.
- The unions aren't happy because the PE bosses are still paying a low rate of tax.
- Business owners will be livid with him.
- PE bosses will be laughing their tits off at getting away so lightly.
....is the Dead Hand of The European Commission behind this?
Often changes which are spun here as some Government policy or other are infact the implementation of European legislation.
srebbe64 said:
I'm given to unbderstand that deferred payments (earn-outs, loan notes, etc..) if completing after April will be paying 18% Tax. That is plain wrong in my view. If someone made a decision to sell their business last year and as part of the consideration there was a perfomance related mechanism, they then work out the post tax earnings only to find they change. I reckon there will be a fair few vendors trying to re-negotiate deferred payments in the next few months.
We are currently evaluating past transaction that have outstanding loan notes etc to see if our clients are affected and if so what can be done. Suddenly the tax liablity could jump from 10 to 18%.Speeder said:
PetrolTed said:
My understanding is that he's scrapped taper relief and introduced a flat rate of 18%.
A total knee jerk reaction to the pressure relating to private equity bosses exploiting it.
I was quite interested to see an apparently unrelated story stating that second home owners in Spain will be pleased to hear that the capital gains tax for them has been bought into line with the Spanish flat rate of 18%.A total knee jerk reaction to the pressure relating to private equity bosses exploiting it.
- The unions aren't happy because the PE bosses are still paying a low rate of tax.
- Business owners will be livid with him.
- PE bosses will be laughing their tits off at getting away so lightly.
....is the Dead Hand of The European Commission behind this?
Often changes which are spun here as some Government policy or other are infact the implementation of European legislation.
1) Increased the taper clock to, say, five years or more.
2) Said that Taper Relief can only be applied to a business which is your primary income earner (or some such wording).
The reality is, the Government wanted to raise Taxes (yet again) and it was an easy target.
Percy Flage said:
What Darling seems to have failed to realise is the impact this will have on the millions (?) of voters whose SAYE plans will be seriously impacted by this.
It appears he may have shot himself on the foot.
I do hope so.
Darling has FA to do with it, he's just a front puppet. Nasty Gordo had all this planned for us in advance!It appears he may have shot himself on the foot.
I do hope so.
The worrying aspect is that length of ownership will no longer have any effect on the resultant tax liability. Therefore, if you buy and sell an asset within ten months you will pay the same tax as you would if you had held the asset for ten years. In other words, the effects of inflation will no longer be taken into account.
I have yet to hear what will happen of (say) you sold an asset after 6 April 2008 that you bought in 1988. I presume indexation will be applied between the purchase date in 1988 and 5 April 1998, Taper Relief for the period 6 April 1998 to 5 April 2008 and no relief after that date.
Does it REALLY simplify matters?
I have yet to hear what will happen of (say) you sold an asset after 6 April 2008 that you bought in 1988. I presume indexation will be applied between the purchase date in 1988 and 5 April 1998, Taper Relief for the period 6 April 1998 to 5 April 2008 and no relief after that date.
Does it REALLY simplify matters?
Eric Mc said:
The worrying aspect is that length of ownership will no longer have any effect on the resultant tax liability. Therefore, if you buy and sell an asset within ten months you will pay the same tax as you would if you had held the asset for ten years. In other words, the effects of inflation will no longer be taken into account.
I have yet to hear what will happen of (say) you sold an asset after 6 April 2008 that you bought in 1988. I presume indexation will be applied between the purchase date in 1988 and 5 April 1998, Taper Relief for the period 6 April 1998 to 5 April 2008 and no relief after that date.
Does it REALLY simplify matters?
My understanding is that indexation will NOT be applied. I have yet to hear what will happen of (say) you sold an asset after 6 April 2008 that you bought in 1988. I presume indexation will be applied between the purchase date in 1988 and 5 April 1998, Taper Relief for the period 6 April 1998 to 5 April 2008 and no relief after that date.
Does it REALLY simplify matters?
Also, here's an interesting article I was sent the other day:
Chancellor tries to pull the wool over our eyes
There's stealth taxes and there's really stealth taxes and this time around the chancellor has pulled off a new tax that is so subtle hardly anyone has woken up to it yet.
Yesterday, in his pre budget report, our new chancellor announced sweeping reforms to capital gains tax. Reforms designed to hit the captains of private equity, taking them to similar tax levels as their cleaners. In the process he clobbered entrepreneurs, venture capital, business angels, and while he was at it, clobbered long term investors in a way that is far from immediately obvious.
When the previous Scottish chancellor was droning on in that never changing octave of his, he announced something of a flagship reform: taper relief on capital gains tax. For your average punter it's dull stuff, but its significance was enormous. It was a tax break designed to encourage investment into business, and to give a much needed boost to entrepreneurs, who after all are the engineers of the UK's future growth machine.
The break was simple enough. If you sold a business asset which you had held for two years or more, than capital gains tax only applied to 75 per cent of the gain. Assuming you were paying tax at the 40 per cent rate, this meant your tax bill would be 10 per cent of the total capital gain, minus your allowance.
If you sold a non-business asset, then taper relief was neither as generous nor as quick to kick in. But, if you sold this non-business asset after you had held it for ten years or more, than capital gains tax would only apply to 40 per cent of the gain, which, assuming you were paying tax at 40 per cent translates to 24 per cent.
Capital gains tax is often seen as a rich man's tax - and many simply objected to the idea of a favourable treatment of capital gains in any way whatsoever. But then again, capital is of course the key building block of economic growth - we need more investment in capital, and so it's logical that a tax incentive on capital gain would prompt growth.
But, it appeared, most people were far less comfortable with the way the fat cats of private equity benefited from taper relief, through the way they were remunerated in the form of carried interest. Nick Ferguson, chairman of private equity outfit SVG, said he was paying less tax than his cleaner, and it appeared many, including Mr Ferguson, thought this was wrong.
For the entrepreneur, however, the tax afforded another advantage. It's not uncommon for an entrepreneur to sweat and toil over his or her business for years, re-investing most of the profits - and only drawing out a modest salary. Taper relief on capital gains recognised the reward such people deserved.
But there was another aspect to capital gains that did not gain anywhere near so much publicity. When you sell an asset, the capital gain is not simply based on how that asset grew in value, but how it grew in real terms. Inflation was taken into account. So, if inflation was running at 10 per cent per annum, and the asset saw its value grow by 10 per cent a year, then when it was sold no capital gains tax would be due. For an investor who holds an asset over an extended time frame, this was a vital and eminently fair component of the tax mix.
Then yesterday it was all changed
Capital gains tax is to be charged at one flat rate - 18 per cent. So whoever you are, private equity manager, entrepreneur, investor, or even buy-to-let investor, your capital gains tax, after your allowance will be 18 per cent.
Mr Darling said his move, "Will ensure that those working in private equity pay a fairer share," and added, "So from April next year I will withdraw the capital gains tax taper relief, and in its place there will be just one rate of 18 per cent - one of the most competitive single rates of any major economy."
Give Mr Darling full marks for bringing simplification to the system. But, that aside, yesterday he portrayed a quite breathtaking disregard for the issues that matter, and went for a skin deep proposal, one designed to win positive headlines - but one that falls apart under closer examination.
And when he said the changes will give the UK one of the most competitive rates in Europe he omitted to tell us it is lower in France and Italy. It's lower in the US too.
So now, private equity's managers will be able to pay tax at 18 per cent - err, well that may be similar to most cleaners, but it's still less than many of the people who work for the companies they own.
Entrepreneurs, on the other hand, are being stymied. Yesterday, Mr Darling, in an attempt to penalise excess, punished risk takers, whose rewards are usually far more modest.
He ceded a short-term advantage to buy-to-let - which by the way is attracting investors in its multitudes because it is seen as less risky and a whole lost easier than building up a business which actually produces something - and yet, even buy-to-let will not quite benefit the way the headlines might suggest.
Because yesterday, and below the radar of most pundits, the chancellor also did away with the indexation allowance of capital gains tax.
Anneli Collins, Head of Private Equity Tax of KPMG said "PE bosses will indeed now pay the same tax rate as their cleaners. But entrepreneurs who have built up businesses over their lifetimes and were perhaps looking forward to selling up to fund retirement will find that unless they can do it before next April, they will pay eight per cent more tax than they were expecting to.
"True, the changes mean a single rate will be in force, but the playing field has not been levelled at all. UK private equity will be taxed at 18 per cent while non-UK domiciled private equity will be subject to a flat tax of £30,000 per year - and then only after seven years."
Greg Limb, director in the private client team at KPMG said "Today's PBR held a bizarre twist insofar as the government has said it will no longer provide a favourable tax regime for employee share holdings. From April next year, employee shareholders will be eight per cent worse off when they dispose of their shares than at present, whereas an investor who doesn't work for the business, could be up to 22 per cent better off."
This peculiar mismatch seems at odds with the government's stated aim of encouraging entrepreneurship and investment, and, furthermore, many listed companies will feel sore that there will be no incentive for them to encourage their staff to hold their shares.
As for buy-to-let, even they may find they won't be as well off as they thought. Okay, in recent years house prices have easily outstripped inflation, but even so, doing away with indexation allowance seems to be a completely unfair, and potentially punitive measure.
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Edited by srebbe64 on Friday 12th October 08:54
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