UK Business Sector's Pleas On CGT Relief Ignored

by Robert Lee, Tax-News.com, London

28 May 2002

Accountants in the United Kingdom joined calls for the government to limit anti-avoidance measures on capital gains tax relief for companies disposing of substantial shareholdings, but to no avail, according to a recent report.

The Financial Director news service revealed on Monday that the Institute of Chartered Accountants in England and Wales recently joined the Confederation of British Industry (CBI) to lobby the Commons Finance Bill Committee for changes to a provision designed to allow UK-based companies to restructure without facing hefty CGT bills.

Prior to the April 1 introduction of the provision, when a company disposed of, for example, a subsidiary, the disposal was categorised as a chargeable gain, and was therefore subject to corporation tax. However, several leading industry groups and politicians have warned that the anti-avoidance measures attached to the provision are vague and widely drafted, leading to the potential for confusion.

Speaking to Financial Director this week, Tory MP Mark Hoban said that the measure was: 'so widely drafted that it appears to catch almost any disposal', and warned that the government risks 'emasculating a relief which business regards as very important'.

Lib Dem Shadow Treasury Minister, Edward Davey echoed these concerns, suggesting that: 'the situation may arise where companies have been advised that a disposal would be exempt, but it turns out not to be.'

Much to the disappointment of the UK's business sector, however, Economic Secretary, Ruth Kelly has rejected calls for change to the CGT relief measure, arguing that the provision is there to protect the regime from exploitation, whereby untaxed income could be converted into tax-free capital gains.

Ms Kelly attempted to reassure British businesses this week, revealing that detailed guidance on how the Inland Revenue will interpret the provision will be released as a statement of practice in the near future.

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