As I have previously touched on in this blog, rises in VAT and CGT have long been on the radar. The more apt question now, for individuals and businesses alike, is exactly when these rises and others are going to start biting.
A rise in VAT could come as soon as the emergency Budget, but from a planning perspective many business owners will be praying that any CGT rise doesn’t happen until at least the start of the next tax year. The coalition statement this week that it will “tax non-business capital gains at rates similar or close to those applied to income” will have sent a shudder down the spine of anyone with shares or second homes. But the sop of “generous exemptions for entrepreneurial business activities” gives cause for hope. But what could this mean?
At the moment, under entrepreneurs’ relief, the first £1m of gains is effectively taxed at 10 per cent after which the current (though not for much longer) 18 per cent rate applies. If the Cameron/Clegg double act wants to lay a marker in the sand for their business-friendly credentials they could do worse than leaving the relief unchanged. Anything other smacks in the face of their claims to want to reward hard work and entrepreneurship.
Could these “generous exemptions” even stretch to include employees as well as shareholders? As some have pointed out to me this week, employee tax breaks could make a big impact in terms of getting good managers to take reasonable risks with growing businesses.
A hefty CGT rise will sharpen minds among business owners looking to sell. It will be only one factor that plays into the selling equation (and much could depend on the relief), but in the wake of the recession there is an awful lot of pent-up demand. There is no doubt that a significant CGT rise could provide the spark for a rush of deals activity ahead of spring 2011.
Meantime the world and his wife holds their breath for the emergency Budget and, judging by company bosses I have been speaking to this week, that includes businesses as well. The countdown has begun and something akin to inertia seems to be the prevailing mood until we know what Mr Osborne has up his sleeve.