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Time is fast running out for small companies to save large cash sums before the business taper relief element of capital gains tax (CGT) is scrapped next April.

Company owners who have kept business assets for more than two years must act now, or face a massive hike in their CGT bill from 10 per cent to 18 per cent after April 6.

Kevin O’Brien, a partner at accountants and business advisers DTE, is urging directors of companies who fear they may be caught up in the changes to seek immediate professional advice.

“There are a number of ways this can be done, but people must act immediately – it’s no good waiting until the new year to act because commercial transactions take time to complete and time is the very thing we don’t have,” said Kevin O’Brien.

Companies can avoid haemorrhaging cash into Treasury coffers by selling business assets before the April deadline, while unincorporated businesses can save significant funds by becoming a limited company and quantifying goodwill, which means paying their CGT bill by 31 January 2009.

Shareholders in private trading companies can use trusts to consolidate gains on shares, which will also boost share values in readiness for a sale.

“This move is particularly useful to anyone likely to sell their business between April 2008 and January 2009 because CGT is only payable on the difference between the final sale price and the uplifted base cost on transfer to the trust,” explained Kevin O’Brien. “It’s also worth noting that if the sale does not happen, the CGT on the first transaction must still be paid on 31 January 2009.”

Draft legislation concerning the CGT taper relief reforms is likely to be published before Christmas when the detail and any anti-avoidance provisions can be considered in detail.

Kevin O’Brien welcomed the government’s indication that CGT retirement relief will be reintroduced, following protests from business organisations.

“The Treasury plans to reintroduce CGT retirement relief in some form which is likely to be a relief on the sale of business assets on retirement, possibly as a fixed allowance of £100,000,” said Kevin O’Brien.

CGT taper relief was introduced 10 years ago in a bid to stimulate entrepreneurial activity by rewarding longer-term investment in businesses.

Currently, taper relief provides a generous tax breaks for owners of business assets with a maximum CGT rate of 10 per cent for assets held for two years. Owners of non-business assets pay tax at maximum rates of 24 per cent to 40 per cent, depending on the length of time the asset has been held. The maximum relief applies where an asset has been held for 10 years.

The taper relief system is being controversially abolished by the chancellor, Alistair Darling, in the wake of reports that private equity ‘fat cats’ were paying tax at a lower rate than cleaners.

Mr Darling claims his reforms will ensure private equity firms pay a fairer share of CGT, but the changes represent a bodyblow to many small business owners.

Taper relief will be replaced by a single flat rate of 18 per cent, while the indexation allowance, applicable to assets held before April 1998, will also be scrapped. In addition, there will be changes in asset valuation rules for assets held before March 1982 and a condensed set of rules for calculating gains on share disposals.

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Media inquiries: David Chadwick (Public Relations) on 01204 497085, mobile 07905 859686, email davchadwick@aol.com




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