Vir Cantium

I'm right, you know …

The PBR unravels

Invariably, rushed law is bad law, and so it has been with the changes to Capital Gains Tax. A reaction to those bogey-men du jour, private equity firms, it seems that many of those who will be hit by the new 18% CGT rate will be those callous exploiters of the workers – errr, workers who hold shares under Save as You Earn and other Employee Share Schemes. Nice one Darling. Indeed, it seems Lord Digby Jones warned the Treasury of this before the Pre-Budget Report (according to Channel 4). Lord Jones might now be noticing that that itching sensation might be something to do with the dogs he’s laying down with.

And let’s not forget those who have run their own businesses for years in anticipation of their retirement, and will see the tax on the sale of their business (which may constitute their primary pension investment) double or worse (retirement relief already having been abolished a few year’s back).

An interesting side-effect of the changes, which take effect from 6th April next year, is that many small businesses, which aren’t already incorporated, will now rush to do so before the 6th April next year, to crystallise any capital gain they have and so take advantage of the old reliefs while they still can. And, just like the years following the introduction of the 0% corporation tax rate (now abolished), the sudden increase in company formations will be hailed as an increase in business start-ups and used to rebut suggestions of an economic slowdown. Don’t believe the hype.

Much has already been said about the con of the £600,000 inheritance tax threshold which is nothing of the sort. With a little tax planning, most couples could take advantage of the first-death threshold anyway. Darling’s announcement simply makes the process a little more straightforward – but hardly justifying the headlines of Tuesday afternoon.

And what of independent taxation of husbands and wives, introduced and welcomed under the last Conservative government? The IHT change would look, to the layman, as recognition of the advantages that independent taxation brings – with one spouse being able to transfer their other halves’ allowance. In other news, a victory was scored in the High Court recently (the “Arctic Systems case”, Jones vs Garnett) when a married couple successfully defended themselves against attempts by the Revenue to stop them splitting the husband’s income 50/50 in order to use her allowances to reduce their overall tax bill.

But principles mean nothing to the government, and Darling announced on Tuesday that the Treasury is looking at ways to subvert the High Court judgement and come down hard yet again on small businesses.

As with the main budget, the media spotlight moves on after 24 hours, but those affected may not appreciate the full negative effects until another year or more, and so the drip effect will continue. Right up until 2009.

If you’re really keen, you could peruse the analysis and discussions on AccountingWeb .

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