Capital gains tax is to be radically revised by making taper relief for business assets more generous and encouraging entrepreneurial investment, particularly in start-up companies, writes Ben Griffiths. Taper relief for CGT was introduced in 1998 to create incentives for investment in assets generating sustained growth. The definition of a business asset to which the taper applies is a 5% stake in the company for employees, and 25% ownership for an outside investor. But the Treasury is reported to be considering a substantial reduction in both thresholds. In his pre-Budget report, chancellor Gordon Brown said: 'A 40% rate of tax on long-term investment discourages the capital formation and the sustained re-investment Britain needs to reach our full economic potential.' Subject to consultation, Brown revealed capital gains tax for investments lasting more than three years will be 22%; while for five-year investments the rate will be 10%. 'The Budget will make a more radical reform to promote not just hi-tech investment, but long-term investment across the economy in Britain,' Brown added. The changes are aimed at shareholders who are actively engaged in a company, its employees and 'business angels' - wealthy individuals who finance new businesses. Mike Warburton, senior tax partner at Grant Thornton, said the reduction was what entrepreneurs had been calling for and should be a boost for fast-growing companies. 'The problem will be to ensure that the shares qualify as business assets for this valuable taper relief,' he said. But Warburton warned a statement from the government relaxing detailed rules on CGT was 'desperately needed'. Ernst & Young, meanwhile, warned the rules governing capital gains tax were becoming over complicated given the yield they bring to the Treasury and said the move would reward tax advisers. As part of the drive to counter tax avoidance, Brown also announced a change to capital gains tax gift relief in the next Finance Bill by ending business assets gifts relief on the transfer of shares or securities to companies from today. ALASTAIR KENDRICK TAX DIRECTOR, ERNST & YOUNG 'The statement promises a lot, but we await details of the share incentives to see if what is proposed meets expectations. The CGT changes are good news for entrepreneurs but it's a shame that we still await details on company cars.' COLIN TOURICK ASSOCIATE FLEET SERVICES 'I am absolutely delighted with some of the changes the chancellor of the exchequer has made on environmental taxes, including the removal of the automatic fuel-duty escalator. It was clearly a hindrance and I found it extremely unhelpful.' DAVID GUEST TRANSACTION TECHNOLOGY 'We welcome reductions in CGT, but we fear IR35 will be a disincentive for new business. If IR35 had been around when we started out, we wouldn't have existed. There is a danger people with good ideas will not have the chance to let that idea grow.'
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