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Owners expected to cash in ahead of CGT rise

Tuesday 9 October 2007

Entrepreneurs who sell their businesses after April 6 face nearly doubled tax bills - prompting expectations of a flurry of sales in the next six months, consultants said.

The chancellor\'s decision radically to simplify the capital gains tax system and charge business owners 18 per cent will remove the need for complex calculations but will increase the amount of tax to pay.

Business asset taper relief allowed owners of qualifying trading assets - such as unincorporated businesses or shares in unlisted trading companies - to pay a 10 per cent tax rate after two years of ownership.

The changes remove the complex calculations owners had been subjected to but increase tax payable on sales of businesses and will extend far beyond the -private equity industry.

This could have a dramatic effect on the timing of transactions in the next six months, say tax experts. Anyone planning to sell a business after April 2008 might accelerate the sale.

The incentive to sell before April could create buying opportunities for corporate raiders and private equity firms by inciting a flurry of company sales, said Chris Sanger, Head of Tax Policy at Ernst & Young.

By removing the difference between business and non-business assets, the chancellor has made the system of capital gains tax far simpler for thousands of business owners.

Tax experts welcomed the simplification to the CGT regime but warned that the withdrawal of business asset taper relief could cause problems to business owners.

\"Owners expecting to sell their business in the next couple of years will be paying far more tax than they previously planned for,\" said Paula Higgleton, tax partner at Deloitte. \"It is likely that business owners will be revisiting the anticipated timing of their disposals.\"

Anneli Collins, head of private equity tax at KPMG, said: \"Entrepreneurs who have built up businesses over their lifetimes and were perhaps looking forward to selling up to fund retirement will find that unless they can do it before next April, they will pay 8 per cent more tax than they were expecting to.\"

But Peter Penneycard, tax partner at PKF, argued that the removal of taper relief would allow business owners more freedom. \"Owners looking to sell-up can now do so at a time of their choosing without having to hang on to earn the maximum taper relief.\"

Copyright The Financial Times Limited 2007

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