For my clients who are running businesses or thinking of starting one, my fervent hope is a tax and regulatory system that is simple and clear. Tax tends to get more complex and elaborate as politicians tinker with it. Tax Lawyers are much too blame too for creating devious schemes. One of the advantages of not being in big law is that I can say that without fear of retribution from partners who do just that.
The Liberal Democrat policy looked quite neat £10k clear of tax and then everything at income tax rates. Sadly it seems that they believe the gain you make on selling your business - taxed under Capital Gains Tax (CGT) will also be at these rates and the allowance may be within that £10k. Its a sensitive matter and it does not win votes to clarify it now. However beware that this could be a problem for you. Now 'tis true that private equity barons did get into a bit of hot water by having all their income taxed as CGT. The Labour Government increased the rate from 10 to 18% but also introduced an Entrepreneurs relief which in the March 2010 budget rose to £2million. This would indeed radically re balance the tax system. Unfortunately in a direction that is rather depressing to business owners and some of those are going to be growing the economy, which is essential.
Its by no means clear what the Conservatives will do. No promises in their Contract with us. They are likely to look at CGT as a source of income generation. They have no commitment to Entrepreneurs relief and one suspects that rise to £2million was made to be slashed by an incoming opposition and provide a Labour opposition with some nice points at Question Time.
My plaintive tweeting over the last few weeks has gone largely unnoticed but I have seem that the Business Leaders Network has seen the issue here. OK these big investors may stand to lose a lot. Sadly so do more modest businessmen.
After the Election there will be little inclination for the government funded schemes that deliver few results and this is probably right. We will all have to contribute to reducing the deficit. High earners will be paying more tax but if you cannot save to enjoy retirement then the NHS had better be good as we and our clients will need to work till we die and England is not as warm a place as Greece in which to do that.
The photograph was taken by me in Athens Greece. You can copy it if you like.
CGT is a tricky beast.
ReplyDeleteOn one hand entrepreneurs need to be rewarded for successfully navigating the risk of building a business. On the other hand, CGT has been used as a loophole by tax lawyers to avoid paying higher levels of tax on income and property.
The Lib Dems propose to raise CGT to prevent the latter abuses but this action also ends up hurting entrepreneurs.
Labour's system of tax credits, in my experience, ends up horribly complicating the tax system, even though in theory tax credits are an attractive option to appropriately balance the tax system.
The Conservatives have muddled plans, made worse by the fact that some of their core support base are those making use of the CGT-tax loopholes.