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Darling's CGT twist may be unlawful

Alistair Darling’s plan to change the amount of capital gains tax entrepreneurs must pay when they sell their companies may be unlawful because it is too last-minute.

The world’s oldest accountancy body says that under European law, any changes to tax legislation must afford taxpayers a “reasonable period of time” to claim for reliefs.

Case law indicates that a transitional period of 90 days, more than the period proposed until CGT reform takes effect, constitutes an “insufficient” time.

Experts at the Institute of Chartered Accountants of Scotland, which delivered these verdicts yesterday, therefore argue enacting the proposals would run contrary to European law.

Moreover, giving company owners just 10 weeks to make commercial decisions and adjust their tax affairs accordingly would be “irresponsible” of Mr Darling, ICAS warned.

Derek Allan, group tax director, said: “At the very least, the chancellor should defer the implementation of this legislation for up to two years.

“If this is not possible, he should still allow taxpayers who owned assets at 6 October 2007 a period of up two years to sell those assets and gain the benefit of indexation allowance.”

Under the CGT reform, entrepreneurs will pay capital gains tax of 10% on lifetime gains of up to £1million, with any excess taxed at 18%. This “entrepreneurs’ relief” starts on April 6, 2008.

Announced last week, the relief U-turns his proposal in October, to replace taper relief, which saw company sellers pay 10%, with a single flat rate of 18%; effectively an 80% tax rise.

With no sign from the Treasury that the changes will be delayed to allow entrepreneurs more time to prepare their affairs, entrepreneurs were advised to take immediate action.

“As a matter of urgency, individuals should look at all their assets, consider how the changes will affect them and make a decision as to what to do on that basis,” the ICAEW said yesterday.

“The Chancellor, despite our representations, has not given taxpayers nearly enough time to transition to the new system. Taxpayers deserve better treatment than this.

“We urge the Chancellor to listen to the tax profession and defer any changes to CGT until April 2009 so that individuals can make appropriate arrangements before the new regime comes in and he can consult properly on its implementation, rather than rushing it.”

Jan 31, 2008
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