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Advisor Predicts Surge In UK Business Exits Following CGT Move

by Robert Lee,, London

15 October 2007

Business advisor, Deloitte expects a short-term flurry in the sale of certain businesses by entrepreneurs in the lead up to the change in the UK capital gains tax regime next year, although it foresees many winners from the new regime.

Last week, Chancellor of the Exchequer Alistair Darling announced that a new 18% flat rate of CGT will take effect from April 2008. This will substantially increase the amount of tax payable by business owners hoping to benefit from the 10% taper relief which exists in the current rules.

"Given the proposed increase in CGT rates, it is likely that we will see a short term flurry of activity in the sale of entrepreneurial businesses," suggested Sam Hart, director of Entrepreneurial Business at Deloitte. "While larger businesses may be impaired by uncertainty in the credit markets, owners of smaller businesses may look to accelerate disposals to take advantage of the 10% rate in the last few months of its existence. The critical thing will be to make sure that the right price is achieved; a low price, albeit with a favourable tax rate won’t help,” he observed.

However, while the change in the CGT rate increases significantly the rate of tax on a sale of a business, Hart noted that the accompanying simplification measures will benefit many business owners, including those who have held business assets for less than two years, and therefore faced CGT rates of either 20% or 40%.

“For some, it will bring greater clarity and certainty. Frequently, entrepreneurs expect to pay 10% on the sale of their business, only to find that due to the complex changes in taper relief since 1998 the actual tax rates are higher. The certainty of a simple 18% rate may be welcomed by these individuals," Hart stated.

He added: "Of course, there are winners from the Government’s proposals. These will include individuals selling assets, such as buy to let properties, which would previously have been subject to a tax rate of 24% after 10 year's ownership. From April 2008 they can benefit from 18% tax after day one. Shareholders in fully-quoted companies (who are not employees) will also benefit.

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