PBR – capital gains tax

A flat rate of 18% CGT will be introduced for capital gains on disposals by individuals, trustees and personal representatives from 6 April 2008. Indexation allowance and taper relief will be abolished; as will the rebasing tests and halving relief (much loved by students in the late 1980s and to which everyone else is oblivious anyway). The annual exemption will remain, as will the ability to offset losses. Reliefs for hold-over, rollover etc., will also remain unaffected.

Whilst the proposal may well serve to simplify the current regime (which the current government itself was, in no small way, responsible for complicating), the pre-warning of the change will, undoubtedly, cause a huge amount of CGT review work to be undertaken before 6 April 2008, and with there being any number of disposals created in order to secure the benefit of the effective 10% rate which will be available for as long as BATR continues to exist.

The effect of the change on the residential property market might be for this to run dry for the next 6 months whilst the buy-to-let crowd desist from making any sales and hang on for the new, lower rate to take effect from next April.

In the longer term, many will question whether this proves to be quite possibly the worst piece of legislation yet to be dreamt up by the current government and, let's face it, when it comes to incompetent legislating, the bar is pretty damn high already. As a nation in which ordinary citizens invest next to nothing in enterprise, and everything into housing stock, the removal of any fiscal incentive for risk taking will almost certainly leave businesses even shorter of capital, send yet more money in the direction of property (can't go wrong with bricks and mortar, don't ya know), worsen the housing crisis and, most frighteningly, perpetuate the existence of the property market dinner-party bore. The money that does find its way into enterprise will be hot money, the retention of which by business will be dependent upon constant growth and, therefore, of little proper use to managers. The notion of employee share particpation, of which, laughably, this government has always been keen to say it promotes, will be finished.

It is worth recording that there has been no consultation on what is, by any measure, a major change and, despite his pronouncements to the contrary barely 3 months ago, this is knee jerk legislation announced by a Chancellor in response to the private equity sector abuses (being abuses, lest not forget, sanctioned by the government and estimated by the BBC to affect only a tiny number of taxpayers in any event).

For this government to attempt to simplify anything to do with revenue law has long been a joke and, whilst the current CGT regime is far from straightforward, it has, at least, now begun to bed down following the introduction of taper relief in 1998. There is a lot to be said for leaving well alone. With the proposals being just that, we hope that they never find their way onto the statute book in their current form.