New Stealth Tax Could Spark Exodus Of Entrepreneurs From UK

by Robert Lee, Tax-News.com, London

27 March 2003

Next month will see the introduction of a new stealth tax which will hit entrepreneurs handing their wealth down to their children. It has prompted many of the UK's most celebrated businesses men and women to say they will consider taking their firms offshore as a consequence.

The measure- which was announced in 1998 and will take effect on April 6 this year- will abolish tax relief on shares or business assets that are passed on to children.

The more visible critics of this new tax include Rachel Elnaugh, owner of Red Letter Days and winner of many business awards. She told The Times that the measure will force many entrepreneurs to think about relocating their assets offshore. "One of the main drivers for many entrepreneurs is the thought that they can pass their business on to their children without incurring any tax liabilities," she explained.

Vijay Patel, winner of the coveted Ernst & Young Entrepreneur of the Year award in 2001 and owner of Waymade Healthcare, echoed Enlaugh's sentiments. "Removing a tax incentive like this would give me a strong reason to relocate abroad," he announced, continuing: "It is ridiculous that I should be penalised for handing over the business to my children." Meanwhile, Andrew Black of the betting company Betfair called the move a "serious disincentive" for people running businesses to stay onshore.

The Inland Revenue has sought to justify the abolition of the tax break by claiming there is a growing incidence of businesses being set up with the sole intention of dodging taxes. In response it has redefined the legal description of what constitutes a trading company. This now excludes any firm with over 20% "non-business" assets (investments in property, shares etc).

The Treasury's decision is likely to meet a cool response from the thousands of family businesses up and down the country. To compound their misery, accountants say there is very little these people will be able to do in terms of minimizing their exposure to the tax due to the sheer complexity and expense involved.

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