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BCC presents Capital Gains Tax Proposals To The Treasury November 15, 2007

Posted by liverpoolchamber in British Chambers of Commerce, Business, Legislation, News.
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The British Chambers of Commerce (BCC) today met with Treasury officials to discuss its proposals on Capital Gains Tax (CGT) in response to a request from the Chancellor to work up options designed to assist entrepreneurs.

The BCC used the opportunity to reiterate its opposition to removing the taper relief on CGT, believing that it will harm long-term economic prospects and damage the Government’s pro-enterprise agenda.

The proposals that were presented to the Treasury were given with two caveats:

1)       All of the proposals should be viewed as measures which would not have been necessary had the decision on taper relief been subject to proper consultation and scrutiny

2)       Any alternatives produced at this stage will inevitably be detrimental to the long-term aim of simplifying the tax system to enhance UK business competitiveness.

The proposals presented were:

Restore reinvestment relief
Reinvestment roll-over relief (as broadly existed prior to 1998) should be reintroduced for all investments in unquoted trading companies to encourage an entrepreneur to start new companies once they have disposed of an old trading company or trading group.  In turn the new owners of existing companies may then benefit from roll-over relief in relation to their past disposals of trading companies (or business assets).  This has the very great merit of encouraging new businesses to be created and existing companies to expand and grow.

Re-basing the value of assets to March 2002
On two occasions re-basing has taken place for CGT.  Re-basing the value of an asset to a particular point in time essentially exempts from tax any capital gain in the asset to that point in time.  There have been two previous re-basing’s: 1965 and 1982.  It is regrettable that a relief for inflation is not included within the new regime as from an economic perspective no gain relating to a general increase in the price level should be taxed.

Retaining Indexation from March 1982 to April 1998
Indexation, along with the re-basing in 1982, is the means by which the effects of inflation on asset values are eliminated for calculation of CGT liabilities.  Almost 38 per cent of the chargeable gain value of assets disposed of in 2004-05 was of assets held for 10 years or more and likely to be attracting some form of indexation allowance.  Introducing indexation for individuals and trusts in the same way as the indexation allowance works for companies would protect capital gains from the effects of inflation.

Retaining the current rate of CGT taper relief but increase the length of time an asset has to be held to claim it from 2 to 5 years
The current system of CGT taper relief is simple to understand and is an entrepreneur friendly measure.  If the Government is concerned to ensure that entrepreneurs who invest and grow their business are rewarded, a better approach than changing the level of the taper relief would be to increase the length of time a business asset has to be held to benefit from it.  This would also retain the distinction between business and non-business assets.

No further rise in the small companies corporation Tax Rate
In the March 2007 Budget Report, the then Chancellor Gordon Brown announced a three year plan to increase the small companies’ corporation tax rate from 19 per cent in 2006-07 to 22 per cent by 2009-10.  When the 22 per cent rate is introduced all small companies with profits of less than £576,925 will face higher tax liabilities compared to their 2006-07 position.  The rate should not rise above the current 20 per cent rate.

David Frost, Director General of the British Chambers of Commerce, said:

“The plans presented today would go some way towards easing the damage which will be done by the proposed Capital Gains Tax reforms but the ideal situation would be a repeal of the announced changes.

“The business community is united in its calls for the Government to think again and I hope that these proposals are seriously considered.”

Read the full Capital Gains Tax proposals [Word doc]

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