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UK CGT Cut Boosts Confidence

by Robert Lee,, London

05 May 2016

A new survey of business leaders by the Institute of Directors (IoD) has revealed that investment in UK start-ups and growing businesses has become more attractive due to the changes to capital gains tax (CGT) and Entrepreneurs' Relief (ER) announced in the March Budget.

As a result of Chancellor George Osborne's Budget, the headline rate of CGT was slashed from 28 percent to 20 percent on April 6. The rate paid by basic rate taxpayers was also cut, from 18 percent to 10 percent. In addition, Osborne introduced a measure to extend ER to long-term investors in unlisted companies.

The IoD surveyed 1,200 of its members last month to determine their attitudes to the reforms. A substantial majority percent of those questioned said they thought the measures would draw investment to entrepreneurial companies. 24 percent agreed that the changes would make such investments "significantly more attractive," and 55 percent said they would become "slightly more attractive."

Stephen Herring, Head of Taxation at the IoD, commented: "The Chancellor rightly reformed taxes on capital gains at the Budget to encourage investment in the entrepreneurial firms that will create the innovative products of the future, and new jobs with them. Today we have the first signs the reforms will pay off, with business leaders overwhelming saying that changes to CGT and Entrepreneurs Relief will draw investment towards start-ups and fast-growing companies."

Participants were also asked their views on the Chancellor's plan to implement deeper cuts to corporation tax in 2020. The rate was scheduled to fall to 18 percent, but will now be reduced to 17 percent. 42 percent of respondents said the cut will attract foreign investment, and 47 percent agreed that Osborne was right to make cutting corporation tax his priority. However, 30 percent believed that other business tax reforms should have been given greater priority, and 27 percent felt that Osborne should have focused on tax reliefs for entrepreneurial companies.

Herring said: "Cutting corporation tax has the great benefit of helping all companies, and the Chancellor deserves to be commended for giving the UK a very internationally competitive rate. Now the good work has been done, at future Budgets the Government should consider whether reliefs targeted at entrepreneurial companies could bring more bang for the taxpayers' buck."

Participants were divided over the pace of Osborne's planned increases to the entry threshold for the 40 percent rate of income tax. The Conservative Government has pledged to raise the threshold to GBP50,000 (USD72,504) by 2020, and an initial increase from GBP42,385 to GBP43,000 took effect last month. 48 percent of respondents thought the Chancellor's pace was "about right," but 44 percent feared it was "too slow."

TAGS: capital gains tax (CGT) | Budgets | Capital Gains | tax | investment | business | tax incentives | entrepreneurs | corporation tax | United Kingdom | tax thresholds | ministry of finance | tax rates | tax breaks | tax reform | trade association | trade | individual income tax | Investment | Invest | Investment

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