Still time for Chancellor to mend Capital Gains Tax damage

With the Chancellor under fire from all sides in the business world, he can still seize the opportunity to turn the furore over his capital gains tax (CGT) reforms into a chorus of approval by boosting entrepreneurship and investment according to Peter Penneycard, tax partner at PKF.

At last week's CBI conference, Alistair Darling, said that he has been listening to the widespread opposition to his CGT changes. He is expected to make his final decision on the reforms within the next few weeks.

Peter Penneycard says:

“Alistair Darling said that he wants a simplified tax system and to reward investment. Extending the Enterprise Investment Scheme (EIS) from next April so that owners of start-up businesses can qualify for the CGT relief as well as investors would be a clear signal that he is serious about both."

"The EIS limits would exclude large businesses but this change would help to restore his credibility as a supporter of small businesses without triggering an immediate tax cost to the Treasury. The current rules are illogical as anyone who owns more than 30% of a company or is actively involved in its management is denied relief from CGT while passive investors do not pay tax on EIS share gains."

“If he extends this CGT relief to owner-managers, the incentive for entrepreneurs to launch and develop their own businesses will be very attractive. It is during the early stages of a business life-cycle that businesses need the most help and this move would be applauded by the small business community."

“The Chancellor could also quell the unrest in the business community by introducing a two year transitional period for taper relief for those business owners who had invested before the Pre-Budget Report. This would only be fair to business owners and would alleviate the need for the forced sale of many businesses before April next year. As we stand now, prospective buyers know they have the seller over a barrel. Taper relief would still be removed from the tax system by 2010 but the Chancellor would uphold the tax promise made by his predecessor."

“When he announces the final shape of the new CGT regime in the next three weeks, the Chancellor has the opportunity to rebuild some of the business confidence that has been so badly eroded by his Pre-Budget Report. I hope he is really listening to what the business community is saying and will act to restore some certainty to business planning.”