Mother of all U-turns
Throughout the 1990s, Gordon Brown β as shadow chancellor and then chancellor β banged on about the need to end Britainβs short-term investment culture at breakfast, lunch, tea and high tea.
As someone who strayed into his path a good deal, his puritanical and laudable determination to find a way of rewarding those who take a long-term approach to wealth creation became familiar (not to say wearing). And he succeeded in creating one of the most benign tax environments of any developed economy for those who were prepared to stake their livelihoods on creating a living, breathing enterprise.
So β as you may have gathered from earlier blogs (here and here) β I was shocked on Tuesday when his successor at No 11, Alistair Darling, abolished so-called taper relief for capital gains tax.
Taper relief meant that those who hold on to assets for longer payer a lower rate of capital gains tax when they sell the relevant assets.
In other words, whether you build a business up over 30 years and then dispose of all or part of it, or whether you buy a bunch of shares at 9am and then sell them at a fat profit at 10am, youβll now pay exactly the same 18% rate of tax.
And, whatβs even more extraordinary, Darling cut the tax payable by most speculators by more than half while increasing the tax payable by genuine wealth creators by 80%.
This is the equivalent of the Treasury saying βletβs turn the UK into a hedge-fund paradise, where the biggest rewards go to those who search out the easiest short-term profitsβ. Itβs a really odd signal for the government to send out.
And those whoβll be punished by the tax change also include hundreds of thousands of individuals in Save as You Earn company share schemes. They currently pay 5% or 10% tax when they sell the shares they accumulate (depending on the marginal rate of income tax they pay). But thatβll rise to 18%.
It effectively sounds the death knell for such schemes, which have been a great boon in aligning the interests of employees with their employers.
All that being said, many will say hooray that Darling should wish to simplify the capital gains tax system. I can see why he thinks that having a single 18% rate, with no tapers and no discrimination between any kind of investment, should be attractive.
Such simplicity is incredibly attractive and desirable. But it is being acquired at a steep cost for what may turn out to be millions of employers and employees β the entrepreneurs and employee shareholders β whose determination and morale are vital to all our economic futures.
All of which is to say that business pressure for a re-think will not abate. And if Gordon Brown doesnβt move fast, he may find himself under attack from the business leaders whose endorsement matters so much to him.
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So is this not the same as almost any budget initiative.....there will be some winners and some losers?
I regret you're adding to the nonsense talked about the effect of CGT simplification. Brown was quite rightly criticised for micro-managing through tax credits and incentives. Tax tapers and reliefs were the cause of much head scratching for professionals, and bewilderment to ordinary mortals. A simple system is infinitely preferable for the Sharesave investor, the small business owner, etc. because they can focus on the economic fundamentals of a decision to buy or sell, not complexities of the tax system which only hinder sound decision making.
The problem facing this government is that rather than commiting itself to 'big' or 'small' government, it tries to pretend that it can keep everybody happy - be friendly to those who create wealth (business and individuals, creating wealth for themselves and/or others) while needing to find ways to fund enormous and growing commitments to to the state. It is trying to maintain the illusion that it can generate enormous tax revenues without the tax burden being an issue. There's a limit to how long such a balancing act can be maintained before the circus guys in the red leotards fall off the high wire.
Shocking!
I hope this raid on 'Save as you earn' schemes comes out into the mainstream media sooner rather than later..
From what you say it seems a real shame...
If its not broke don't fix it!
It appears that this an issue where the need to do something about the over-generous treatment of some groups such as Private Equity partners has binded the Chancellor/PM to the wider impacts. The real target should have been carried interest where there is a good case for some or all of the 'gains' to be treated as what the really are - income taxable at 40%. There would then not be need to 'reform' CGT yet again. Of course, this group will argue that if that happened they will move offshore to another tax haven (for that is what the UK is to some). That's the trouble for the Exchequer with the rich and indeed some financial companies - they are very mobile, although they do like living and working in London so how many would up sticks is debatable. Nevertheless, the political need to be seen to do something to tax a few will have wide ranging impact. Very unfortunate and the PM deserves to feel a backlash.
However, this is unlikely to be the death of SAYE schemes since most participants make more modest gains which with sensible planning would be dealt with within annual allowances - no tax at all rather than facing an 80% tax hike. It is also risk-free potential gains for those with enough money to save through SAYE - a no brainer whatever the tax rate.
If I understand Mr Preston correctly, the Exchequer is yet again hurting the ordinary saver who has been prudent and placed earnings within the company to gain an advantage by Save As You Earn, and increasing the liquidity within their companies.
Yet again, this government gives to a few and takes from the many.
Your analysis is absolutely correct as far as this investor concerned. I will now switch my attention from investing in high risk business start ups to short term property deals and share trading. The tax rate is now the same and the latter investments are asset backed and therefore lower risk. Not much point holding AIM shares now either.
It seems extraordinary that the Treasury have not thought about the probable consequences to long term new venture investment, rushed sales of businesses pre April, property prices, AIM, employee share schemes etc.
The Government has persuaded people to invest in new enterprises on the basis of a significant tax concession (taper relief) but has then withdrawn this concession before many have had the opportunity to sell. This seems like the behaviour of a disreputable time share saleman. If this was not the Government they would have been reported to the OFT or the police ?
So what you're saying Robert is that slow wealth creation should be rewarded at the expense of quick wealth creation. Is that what we want?
Simplification has huge benefits and CGT has been excessively complex to operate.
Next, let's get rid of the ³ΙΘΛΏμΚΦ license fee - there is no more universal service than TV (over 99% of households have it). IF you take it out of general taxation we can cut the cost of collection and put it into the health service, education, transport or whatever.
Then combine income tax and NI (with the added benefit that people will be able truly understand the level of tax that is taken from their income).
As a self-employed Labour voter married to a Labour-voting small business owner I have to say that we've reached the end of our patience with this government. The original aim of New Labour seemed - to me at least - to marry the ability to aspire and to work hard for oneself with a progressive social agenda. In other words, there were incentives to work hard and to provide for oneself, one's children and one's retirement, but also an implicit understanding that all taxes raised would be used for the necessary reinvestment in the country's infrastructure and education after years of neglect.
Ten years on, after years of increasing tax, increasing waste, increasing deafness to the lives of ordinary people, the government is now effectively saying "up yours" to all of us who believed in taking a long term view. Whilst simplification in the tax system is absolutely a goal - to make this change before so many small business owners had the chance to see the fruits of their work is a massive kick in the teeth. For over ten years we've risked what we've had to try and build up our businesses. Re-mortgaged the house with all that attendant worry about "what if it's the wrong decision, what if it doesn't work out." Risk-taking for the long term is not the same as speculation and flash-harry riches. It's about responsibility. Building something. Employing other people who wouldn't have those jobs otherwise. The pay off was a reasonable tax take for the country and something to retire on for oneself.
For those people who think this is just about me whingeing from narrow self-interest, well it affects me so I am upset. But you should worry about the future prosperity and job prospects for this country. Entrepreneurship and small business creation is - if it builds for the long term - the bedrock of our nation's prosperity and hope for tomorrow. What we've got now, thanks to Darling and Brown is a speculator's charter. Short term gain over long term commitment and hard work.
I don't think I can ever stomach going over to the Tory side, but my days of voting Labour are over. If this is Brown's vision, heaven help our country if he suffers from myopia.
I keeping with the style of the moment, can I accuse you of being a magpie please, Mr Preston? This is largely what I pointed out yesterday in you 'a speculator's budget?' posting.
Still, I wonder how many second homes will go on the market on 2 April 2008, causing an overnight property slump?
Don't miss the point on this one.
This is another tax increase from The Dark Lord, delivered by his man Lucius, to fund his ever increasing budget deficits.
There was an excuse - low tax on carried interest for wealthy individuals in private equity - there was a claim - simplification of a tax, which is a real first for this lot - and there is reality - Β£900M of extra tax taken from the pockets of many people rather than the few who were claimed to be the target.
For many years the tax system has been generous to entrepreneurs running businesses in which they own a large stake.
But the picture has now changed. The CGT changes are part of this. So too is the proposal to counter "income shifting" by which (for example) an entrepreneur could arrange his financial affairs so that the income generated from the business was split between himself (or herself) and his / her spouse and sometimes other family members.
At the same time corporation tax rates on the profits of smaller companies are being increased progressively.
The tax tide is now running strongly against small businesses.
The goal posts have moved once again!
Having set up a business in 2002 there was a great incentive to incorporate as there was no corporation tax to pay on the first Β£10,000 profits. Of course in the first two years I did not make any profit and the incentive was then taken away.
After starting to make a profit, corporation tax on small businesses is on the way up from 19 to 22%.
I have spent 5 years working all hours with limited holidays and had planned on selling up and taking a long break as a reward for my hard work, and by the time I do this I will be taxed almost twice as much as I had expected.
When are things going to start going in my favour?
People don't go into business for tax breaks. They go into business to make a lot of profit.
It should not be the job of government to decide what is good or bad profit. They have never run a business and aren't likely to.
You don't set up businesses for tax breaks. If you do then you are asking for trouble. Politicians are fickle beasts.
Presumably this will initiate a huge round of sales of shares prior to April, some of which may have been held for many many years, thus triggering a large one off income for the treasury. This would be handy for the PSBR figures just in time for a 2008 election. Or am I being cynical?
A 4 year turnaround tinkering with tax quirks and allowances is not, nor ever has been the same as 10 years slogging building up a company through serious grafting. To view them as the same under the guise of 'simpplification' shows that the new Chancellor not only has lost the plot but has no idea about industry or investment.
Perhaps he is already seeking to get his C V out there early for cushy directorships because he knows this government will finally implode, and clearly with moves like this on CGT earlier rather than later
The Treasury has always taken the view that it didn't really need to invest money in things like new technology but that it was cheaper and easier to let other countries develop these things so that we could buy what we want when we need it.
The CGT changes along with the increase in corporation tax would appear to be yet another nail in the coffin of entrepreneurs who dared to think differently.
From one perspective this could actually be bad for revenue collection as companies looking to unlock capital gains from years, decades ago might think again, what with a sharp 80% rise in long term capital gains taxes; ensuring there is that much more inefficient use of capital.
Not to mention the negative impact on small businesses.
Pat wrote: So is this not the same as almost any budget initiativeβ¦..there will be some winners and some losers? (Post 1)
That is the case, but the initiative is usually intended to promote beneficial activities and discourage less beneficial ones. Unfortunately the Brown regime seems intent only on raising money without any regard to long-term benefits. Witness the pensions raid and subsequent investment changes. The only wealth generation he hasnβt dipped his finger into yet is house equity, but that doesnβt carry anything like the same prospect for future healthy growth of the economy.
The economy safe in his hands? In a few years we will see why it isnβt.
If Andrew #11 is right then this change will benefit first time buyers far more than any Stamp Duty tinkering! Surely though the only people who will be rushing to sell on April 6th are those who would have sold in the meantime and now decide to wait ... though if he is right they will end up paying 18% on a lower profit rather than 24%+ now which may or may not be a good call.
Any other BTL owner who thinks their property will continue to increase in value won't rush to sell, since from April they will get to keep 82% of the profit when untimately do sell.
The proposed change to CGT and taper relief must have been made in desperation to raise money wherever he can because our finances are in such a mess.
When Labour came to power the first thing Gordon Brown did was to raid the pensions. The damage this did to the savings culture that had been promoted previously is still being felt to this day.
The CGT changes will have the same effect for existing and future entrepreneurs. Why bother as the risk v reward is not worth the sacrifice.
Let's all go to work in the public sector, create nothing and get better salaries, working conditions, holidays and pensions.
Robert, it's nonsense to say that Brown created one of the most benign tax environments for those wanting to start a business.
IR35, IR591, the re-interpretation of S660 and many other measures mean that I, running a small business, now have to take out insurance against being investigated by HMRC. This investigation will be based on 'hypothetical' contracts: documents that don't exist except in the mind of the investigators.
How many benign tax regimes do you know that can damn you with imaginary evidence?
And it goes on, with Darling now carrying the torch, or rather the cosh, for big business against the little guy. Legislation against income splitting means that the govt will once again come up with some arbitary and woolly definition of how much 'work' a spouse needs to do to merit an income from a partner's business.
Am I correct in thinking two other side-effects will be to devalue the CGT tax breaks of ISAs and, in the longer term, add to the risk of a housing bubble through more buy to let property purchases?
I echo Robert Pestonβs sentiment in finding the CGT changes extraordinary, but more than that, I find it completely exasperating.
Having set up in business 2 years ago, I entirely agree with many of the sentiments expressed above by other business owners who until now were encouraged by the favourable tax treatment that taper relief afforded.
As an accountant, although not a tax specialist, I would though also agree that generally simplification of the CGT regime is very welcome.
However, my big bugbear with the CGT changes proposed in the PBR is the lack of any apparent strategic thinking behind the changes (Brownβs vision if you will) and an apparent disregard for the consequences. It is almost as if the changes announced were only decided upon on Monday night! So the GMB Union has a problem with private equity, this change goes some way to addressing that, but it is almost as if it is incidental that it affects a few hundred thousand others as well (not just business owners, but owners of other assets, including property).
I am certain there will be a flurry of business disposals between now and next April as many look to make use of the taper relief provisions, there may also be a flurry immediately afterwards as others appreciate they no longer need to wait any longer, 18% will be as good as it gets after that date no matter how long you own your business.
Mentioned above by J Shaw - this will also have implications for the housing market. If you are a recent buy to let investor with an interest rate of 5.7 - 6.7% and net yield of 5%, knowing that beyond 6 April 2008 your tax rate will fall to 18%, but you will lose out on any indexation thereafter - you would conclude time to sell, even if only to buy another property. Time to do the same if your property qualifies for taper relief, after all you'll lose it after 5 April. Given April traditionally sees a pick up in house buyer activity, this could well make interesting viewing!
Not only does this not seem to have been thought through, but it seems bereft of any underlying purpose. What was the point? It only raises another Β£950 million. Sure it gets at the Private Equity partners, but beyond that? What is Mr Brown's vision? There is no sign of it here! And the reason I am exasperated - this doesnβt feel like good government.
Please, please, please can we just have someone doing something for the good of the country for a change?!?!?
As a small business owner built from nothing over the last 5 years, this move comes as a shock but no real surprise.The disappointing thing is that it looks like a knee-jerk reaction to a public sentiment about the Private Equity business rather than a thought through strategy which allows those of us who create wealth for those we employ, pay taxes such as VAT and Ni for the benefit of everyone and yet deal with mountains of red tape, to grow.
We are encouraged to start enterprise and do so because not all of us wish to work for major corporations- most of which pay little tax in comparison.
Get on to the Downing street website and make your views heard.
I don't think nearly as much thought has gone into this change as you give credit for Mr Peston.
It was quite clearly an easy gimmick for a headline "capital gains tax cut" while actually increasing the amount raised.
This Government is slowly but surely sucking the life out of small business.
It's a government run not by/for the nation of shopkeepers but the lazy non- producers - the government itself.
Those that cannot work - govern.
CB
Yes, this change does affect Save As You Earn schemes, but we small investors still have ISA's don't we ? These are 100% exempt from CGT (Well for now anyway !) I would severely question whether SAYE participants really feel more aligned with their employers because of these schemes as the sums involved are usually quite small. And it is not in the investor's interest to have all their eggs in one basket by investing in a single company, even if they do work for it.
The anti-business content of this pre-Budget report is even more astonishing when one remembers that Gordon Brown personally oversaw the creation of the 'Business Council for Britain' only 4 months ago, with the remit to advise him personally on "issues that effect enterprise, business and the long-term productivity and competitiveness of the economy".
Surely, this week's report shows that he never had any intention of listening to any advice whatsoever. The Council was set up during the razzmatazz period of Brown's early days as PM, a ploy to demonstrate he was a "new brush" and was keen to show his desire for inclusiveness.
On the first occasion when business's voice should have been able to have an impact through this Council, it has failed miserably.
In his Chancellor days, Brown was a tinkerer, a ditherer and a "smoke-&-mirrors" expert. He is continuing as such as PM, claiming to be interested in, to listen to, and to establish a forum for business, yet in practice continuing a to preside over a tax-&-spend (or tax-&-waste) administration.
Consistent, but consistently two-faced.
A flat rate 18% on all gains is mainly a tax on inflation (regardless of all that hard work building up businesses people here are posting about).
Merely holding an asset long enough will cause you to have to pay the tax on disposal.
And all Mr Brown needs to do if he is short of a few readies is to stoke up inflation a bit - lean on the BoE to reduce interest rates (yes it would be possible if only by getting your own man in) , increase public spending, increase PFI borrowing, increase taxes blah blah blah
Lay a bait, let entrepreneurs fall for it and flock to the UK, then clobber them with an increased CGT. Nice trick but not a game you can play all the time.
My money is on savvy businesses finding innovative ways of transferring income - income that would have previously been paid as salary and dividend - into Capital Gains.
But here's another prediction: The government will suddenly decide to go after those businesses for gaming the system! One rule for us...
Brown started this whole ball rolling years ago when he scrapped retirement relief for small business owners (around about the same time that he wrecked the pension schemes for millions of his fellow countrymen) So we should not be surprised by a 'spivs budget'
This is just the usual ill thought out rubbish that has nothing to do with long or short term investment and everything to do with shoring up an overpriced housing market so that the 'feel good' factor can be maintained amongst the proletariat. At least until after the next general Election !
Could I please post a slightly off-subject point as growth projections are adjusted down and government debt is increased.
The government need more money, so they tinker with CGT and also try to con the public with smoke and mirrors about IT threshold revaluation, best total gain estimated at Β£1billion.
Surely any cash starved Prime Minister with half a brain and committment to the country would have the courage to bring about the cuts in the government excessive spending that has failed to produce improvements in performance over the past 10 years.
It has been apparent for years that the NHS, Education, the Civil Service, Welfare and Local Government are wasting money like black holes of galatic proportions.
Why do we tolerate politicians that mislead the public by insignificant taxation detail whilst the areas of extraordinary wasted government expenditure and high potential savings are consistently impassed.
Some journalists, not you Robert, may say that is the art of politics, no no, never, that is the evidence of financial incompetence.
I am not going to comment on the detailed proposals contained in the PBR, I just want to make a point. I think it is a little unfair to blame the Government for making these changes to CGT (or any other tax for that matter) or criticising them for making a "U-turn". It seems that changes to any tax legislation is in response to abuses of the system (of tax reliefs) honestly put in place by the Government to try to help business. Blame the people who bend the rules and devise elaborate and artificial schemes to abuse these regimes for the eventual restriction of reliefs.
After my pension was robbed all that was left was my company, now yet another highway robbery. I am fed up watching everything I have worked for and paid for being robbed to pad the copper bottomed pensions of these highwaymen.
If they want to drive my company away to Germany they are certainly going the right way about it.
Don't get me wrong, I hated the Tory oppertunist approach to Tax at their conference which was clearly designed to make sure an election didnt take place. A very succesful tactic it was too. OK! job done, move on. Then comes in dear Darling and takes all the bad that was in the Tory(we werent going to do it really) ideas and massages it into his pre budget!
Why Panic now!?
All he's managed to do is introduce an IHT which clever people could have done already and pee off the Business comunity and upset the very tiny number of non-doms who probably contribute a disproprtionate amount of tax relative to their numbers anyway. Money we wouldnt see in our coffers if proposals go through.
George Osborne fills me with no confidence but Darling you fool!
All the entrepreneurs who are put off by an increase in their marginal rate of taxation from 10% to 18%, could always work as a regular employee and pay a marginal rate of 40%. That's clearly a much more attractive proposition.
Nobody wants to pay tax, and everybody can construct an argument (or rant) as to why they shouldn't. But very few people seem to be able to construct an argument as to why they should be favoured above, say, somebody earning the minimum wage but still paying income tax.
What A right very mess we are entering. How very dare he, and watch as the housing market slumps, Gordon needs cash to sure up thos BoE loans that will see no equity left in the property they were sold against!
You refer in your article to two situations being taxed in the same way, at an 18% rate of CGT. The first is a situation where an individual has built up a business over 30 years and then sold part of it. The second is a situation in which an individual buys shares and then sells them an hour later.
As would, I think, be fairly apparent to anyone familiar with the UK tax system, these two transactions would not in fact be taxed in the same way. The first would undoubtedly be a transaction on capital account to which CGT would be relevant. But the second would almost inescapably be a trading transaction, to which CGT (at any rate) would have no relevance because the individual in question would pay income tax on the net profit.
It would be nice if ³ΙΘΛΏμΚΦ articles dealing with tax were written by someone who knows some tax.
Surely it is better that a single rate applies across all share holdings.
Then the shareholders will response more readily to the actions of the companies they invest in, rather than their tax implications.
I just wonder if the extra tax take comes close to the amount of money (wasted) paid to accountants, or financial planners, to optimise people's assest holdings?
This appears to be yet another case of throwing the baby out with the bath water. In their attempts to try and accumulate extra tax income from a very small number of private equity bosses, they have succeeded in punishing tens, maybe hundreds, of thousands of others, in particular those who currently use employee savings schemes. This is not the smartest of moves in so many ways.
Can't we have a CGT system like the French ie 27% paid if you dispose of the asset at any time during the next 15 years. After 15 years, nothing to pay. This encourages long term holdings. Just a thought.
But had he done nothing about it, then your article would have been about the injustice of tax that PE firms pay - give them a break.
Re 28: "And it is not in the investor's interest to have all their eggs in one basket by investing in a single company, even if they do work for it." All I can say is that is it is not in their interests ESPECIALLY BECAUSE they do work for that company: if the company goes bust, they lose income and savings in one fell swoop.
Re 40: "A flat rate 18% on all gains is mainly a tax on inflation ... ." Which is why the former Chancellor's abolition of indexation relief was another stealth tax!
Dondon (#37), it is so very unfortunate that you display the politics-of-envy attitude to entrepreneurship.
I can only suggest you study the available statistics and understand the real rewards - and risks - associated with establishing and operating a business.
This change will simply force more and more "normal" businesses to set up offshore parent companies to own and deal in assets. There will be a net outflow of capital from the UK economy, and then there will we be?
Meanwhile this really is the last-gasp rescue mission for Brown's policy of pretending that artificial wealth (house price increases) is the same as real wealth. Right now, in London, residential property is selling for 260% of the price of commercial property, so all the buildings used by small businesses to employ people are being knocked down to make way for housing. Which is fine, so long as nobody needs to work, create wealth, pay taxes, etc.
All in all Brown comes across as reckless and deluded, and Darling as somewhat similar without the intellect or political savvy. I'm sure, if Brown didn't have a Scottish accent, nobody would trust him in fiscal matters one jot. It is just a shame for our children that so many of you did.
Dondon at 37 says that few entrepreneurs could construct an argument as to why they are "favoured" above someone paying the minimum wage. The implication beyound this is that entrepremeurs and small-business owners should be taxed at a higher rate than they currently are.
Minimum wage? What minimum wage? When you start a business often the first couple of years you're earning considerably less than the minimum wage, with all the hours you put in. Even now, in my own business there are periods of time when you have to do a lot of "upfront" work in order to effect a sale. There's a 100 per cent risk on this work, as if I then don't sell then I don't get paid. And all that work is lost.
So life is risk. A lot of continued risk.
Speaking of risk...
Many small business don't see any profit in their first few years of establishment. Start up costs and fixed costs are disproportionately heavy at this part of their business life. You have to borrow money and invest heavily with your own time on top. Most small businessowners give everything to get their businesses to a viable point. They're often not drawing minimum wage until that point in terms of the thousands of hours they put in. So there's no "safe bottom line" guaranteed by a minimum wage. In fact it's usually perilous in a way that's almost impossible for anyone who hasn't run their own business to ever imagine. And beyond the start-up times it's quite usual for small business-owners - in subsequent rocky times - to pay their most valued staff MORE than they pay themselves, to retain them, whilst trying to increase sales and get through tough business patches.
So why do it?
Because often people see an innovative way of making a product or providing a service that would - in the long run - allow them to make a lviing, employ other people in valuable and hopefully much better than minimum wage rates, and in creating business pay a reasonable rate of tax for the country that would - one hopes - be used for the betterment of the country.
What upsets so many people about this latest tax move is that it now values day to day speculation as much as careful, big risk taking, long term business. Neil at 14 says that people don't go into business for tax breaks, they go into it to make a lot of profit. Actually I'd argue that most people go into business to make a living. In the long run they hope to make more profit in the same way a regular employee might hope one day to get promoted, but not-so-many people go into business expecting to make massive profits immediately or within a very short timescale. It usually takes years to build up a product or brand or personal sellable reputation.
Years of hard graft often at sub-minimum wage rates and at great personal risk.
But if they pull it off then more businesses are established. People get employed. Tax gets collected. And lot of collateral social cohesion is achieved. Maybe even local or regional regeneration. In other words small business success can kick off a much bigger virtuous cycle.
Personally I believe that such entrepreneurial risk should be encouraged by a tax system that respects long term commitment. Apparently so did Gordon Brown. Once.
If Darling and Brown had bothered to consult all their business advisors on this issue and a consensus had been built then I might be more persuaded that it's a good thing. But they knee-jerked for the private equity headline. Effectively imposed an eighty per cent tax RISE on people who'd worked for the long term and hardly touched the very few private equity individuals they wanted to target.
Short-term political panic over long term strategy. Because now one might as well work to immediate speculative gain, rather than spend years of their lives building a business from scratch.
And as I argued before, it's the precisely these small businesses on which the future prosperity and employment hopes of the country depend. So, Dondon, not much use having a minimum wage (or better) if there are no jobs in which to earn it.
I reckon it's all part of Gordons pledge not to let property prices rise to dramtically.
Come April 2008 all the buy-to-let investors will be able to dump their property at a greatly reduced tax rate.
The fallout should be interesting.
More than half of the employees within our 7 year old company hold shares and share options which we have been delighted to hand over.
They are never going to be the fat cat private equity people I think this change in CTG is designed to capture, they are just extremely hard working, dedicated people who have a one off opportunity to accumulate a bit of equity to do whatever. Pay off their mortgage, have a better retirement - whatever. These are the people you have succeeded in penalising Mr Brown. I have never seen such hostility as there is towards this obvious injustice. There's one thing for sure, Labour today is not a party for the people, and measures like this will make sure that even when they do have the guts to call an election, they won't have a hope, well not if the reaction of my colleagues is anything to go by, and they are typical Labour voters.
A very disappointing performance from the man (GB) who billed himself as the champion and advocate of small businesses. To support such a blatant injustice is beyond belief.
Have the French tax rules on CGT been in force for more than 15 years? What a nice little honey pot for a government to dip into if it finds itself in a tight corner - zero tax CGT.
CGT should be a time dependent tax; the longer you own and work an asset the less tax you pay at the point of sale.
Jessica above put her finger on it exactly.
Assets owned over 15 years should be FREE of all CGT.
Now that is what I call sensible simplification.
The problem in this country is we have politicians who in my opinion are just plain thick.
(Please can you not publish my surname)
Just listened to the Today programme. Thank you and well done Robert for highlighting the devasting impact the 80% increase to 18% on CGT will have on small businesses and workers with share options.
Over the last 30 years, my parents have built up a respected business. They've employed people, paid their tax on time and worked pro bono for both local and national charities. Now my parents are nearing retirement they are considering selling the company. Till the Pre-budget came along...
They aren't fat cats, they havent been in it for a quick buck, nor tried to evade tax. It has been years of hard work, often reinvesting in the company rather than taking home profits. The 18% annoucement will have a major impact on the amount they will receive from selling the company.
As a previous Labour party supporter, indeed having worked for the Party, I can't ever see me helping them again, indeed I don't think I would vote for them again either.
This policy is hitting the people, both business owners and staff with share options, that Labour should be thanking. It is these people that have kept the British economy going.
Gordon, you only moved next door - how on earth did this dud policy get past you? Cameron must be thinking Christmas has come early.
I know businesses arent known for this, but does anyone else think a march on Downing Street is in order? Maybe the CBI and TUC could hold a joint protest....
Whenever, the tax rates change someone gains or loses. The gross complexity of the tax system suits politicians because it can be manipulated easily to fool voters about who gets the real advantage. This is just another reason why we need to change the tax system. Neither wealth nor income is of any value until it is spent. We should recognise that all our grand tax schemes ultimately tax consumers and therefore a move from an income based system to a consumption based system could be achieved without tears. Why not just tax consumption? What could be easier, fairer and more transparent? What would better show up the government's colossal tax take to the ordinary voter?
This knee-jerk type of government is reminiscent of the Dangerous Dogs Act etc. of the weakened Major years and the befuddled previous Labour administrations who talked big but just got Government Budgets into deeper debt whilst sucking the lifeblood out of most wage earners and companies-using superficial social prejudice and envy to justify their fiscal tactics. Brown is gradually taking us back to beer and sandwiches at No.10. Though this time the consequences could be much worse in our highly geared loan climate, if confidence is sapped away in banking and financial markets.
Brian Fitzell Kent
And those whoβll be punished by the tax change also include hundreds of thousands of individuals in Save as You Earn company share schemes. They currently pay 5% or 10% tax when they sell the shares they accumulate (depending on the marginal rate of income tax they pay). But thatβll rise to 18%.
Robert, why did you fail to mention that in 1997 the rate of tax was 40% and then it came down to 5% or 10% and also failed to mention that the first Β£9,000 are non taxable?
Post #37 Mr Dondon is spot on.
There is no reason why slower wealth creation should be encouraged over quicker wealth creation (regardless of the hard working versus speculator epithets).
A flat rate of CGT has become a simple tax on inflation no less. The hurdle rate for holding that asset is now to ensure that it works to provide at least the rate of inflation plus the rate of CGT - or you'll become steadily poorer.
This could encourage more efficient use of capital and actually alter the prices of assets between those that will appreciate over time (including CGT) and those that depreciate (including CGT). The question is - which assets will be winners and which losers?
Too many hang onto assets because of the tax issues. We mustn't let the tax tail wag the investment dog.
Finally, I would now add CGT to primary residences - this would help bring house prices down as (1) it would become more difficult simply to sit on that asset and become rich in real terms (2) by bringing it into line with other forms of investment it would reduce the amount of money going into the housing market.
re: 39
It would be even nicer if comments posted in response to ³ΙΘΛΏμΚΦ articles dealing with tax were written by people who knew about tax - almost inescapably, however, such a scenario is merely a pipe dream.
CGT *is* payable on share sales (if, in addition to being wrong, you don't believe me, look at
All of which makes me wonder if you have been under-declaring your tax liability in your returns, Paul: maybe someone who knows about tax should ask Hector to check...
this is really tough for me to accept.I lost my job during the thatcher 1980.s. having a young family of four to bring up, and 1000.s locally out of work, my only alternative was to work for myself as a tv engineer.All my children have degrees now and I,m 62 skint and a bit worldly worn.I managed to buy the premises in which I work and have applied for planning permission for two appartments to be built. my personal pension has been ravished, and now the chancellor wants one sixth on any money I may get for the land.There is no one to fight my corner and I have no choice in this.Sometimes I feel my country does not like me. Paul
Paul Cotteril, I sympathise with you, because I also have friends who lost their jobs during the Thatcher era, two of which were accountants and besides loosing their jobs they also lost their houses and eventually their families because of divorce. Rich for some on ³ΙΘΛΏμΚΦ blogs to talk about distress in society, moral issues and broken families!
Paul, during the Thatcher era, the tax you are referring to would have totalled 2/5 not 1/6 as it is now! If you pay the basic rate of tax, it was 22% under Thatcher and as from April next year it would be 20%. VAT under Thatcher started at 7.5%, which went up to 17.5% by 1997. Under Labour VAT started at 17.5% and so far it is still 17.5%.
Post #58 - I think you need to look at the broader tax take than simply picking on some high profile numbers.
It is on record that the tax take is massively higher now than 10 years ago.
Not only that, but people don't make the link that because of Brown's raid on pensions c. 10 years ago (estimated at Β£5bn a year when launched and now much higher) this has resulted in far higher employee and employer contributions in the private sector - equivalent to a rather large effective increase in tax on income.
Re 56.
Thanks for the correction, VK, though I note you appear to have misquoted what I actually said. Without wishing to start a war of words, perhaps I can clarify what I was saying.
The fact that a person sells shares does not in itself tell you how they will be taxed in the UK - what is more important for UK tax is not the subject of the transaction, but the nature of the transaction. If someone has held onto shares for 30 years before selling them, that will most likely be a capital transaction which will be subject to CGT. If someone buys shares at 9am and sells them at 10am, it would be quite difficult to justify taxing that transaction as a capital transaction unless the surrounding facts were just right - for example if this was a one off transaction and there was no evidence of that the shares were acquired with a view to selling them on for a profit in the short term. In particular, the rapid turnover of assets would point strongly towards this being a trading transaction and not a capital transaction, in which case CGT would be irrelevant as the person would be subject to income tax instead. Admittedly, the position is perhaps not quite as clear cut as my earlier post made out, but I think the answer is the same.
Re: Emma #51
We are in a similar position to your parents - none of our children wish to take over the family business, so would be looking to sell out eventually.
I agree that as a breed, we small business owners take too much lying down. It is difficult to raise our heads above the parapet and complain noisily for fear of the microscope of publicity being focussed on us and our staff without the resources of a PR department each. We are also far too busy trying to make a living.
It's also hard for the general public to know (or care) what it's like running a business - they all seem to think we're loaded. Most of my public sector working friends, whilst sympathetic, don;t realise how valuable their guaranteed pensions are, for example, and how much of a fund would be required to give an equivalent private pension.
If you want to march to Downing Street, count me in!!
I saw a comment at the weekend from a financial journalist which had not really occurred to me before (or The Treasury apparently) :
Regarding tax, you can have simple OR fair.