Bel is thinking

In my last post, I wrote about the hardships that the proposed abolition of taper relief would cause to small businesses. I am therefore somewhat happy to read today that Gordon Brown is considering a U-turn.

Under the revised plans, when a business owner comes to dispose of his business, capital gains of up to £100,000 would be exempt, with the rest taxed at 18 per cent. Also, the taxpayer can only claim this relief once in his lifetime. This looks suspiciously like the old retirement relief rules, which were abolished by Gordon Brown sometime ago. This won’t be the first time Gordon Brown has abolished something, only to revive it in another form. It gives the impression that this Government lacks a coherent policy on tax. And as is the case where such uncertainty exists, it is the taxpayer who suffers the most.

Still, I am glad that some measure of relief is being given to small businesses. But what about employees who have shares in their company share schemes? With effect from 6 April 2008, the effective 10 per cent rate will be withdrawn for them, and they will pay capital gains tax at a rate of 18 per cent. I would like to see another U-turn by Gordon Brown to afford some relief to this group of taxpayers.

An extract from a comment, which I thought merited wider publicity, on my post about taper relief:

I have owned my business for over 25 years and if I wished to sell now my capital gains tax, allowing for indexation and taper relief, would work out at £59,000 - if I do not sell until after the 6th of April next year my capital gains tax payable will increase to £144,000.

So after all these years of working at my business and just before wanting to retire this government robs me of over £80,000 from my retirement fund. This is robbery - our tax planning strategy has just been ripped to shreds.

Also many people here in the west country who own hotels and similar small businesses are likely to see a stampede of people trying to sell their businesses before the 5th of April 2008 - this is not a healthy situation.

So much for certainty in the tax system. The way things are going, even simple tax planning will soon be out of the question.

As taxpayers we seem to be in this situation where we do not even have a basic idea of what we may or may not do to order our tax affairs.

I do a lot of tax consultancy, and I cannot even begin to tell you how often I have had to unravel simple tax planning arrangements made for clients because of ham-fisted attempts by the Government to crack down on complicated tax avoidance. Many times, in attempting to clobber a targeted group, the Government has enacted legislation that has had unintended effects on taxpayers who were not even within its sights in the first place. Many times, tax legislation has been rushed through, only to be repealed soon after, as the consequences (always predicted by tax experts, and ignored by the Government) later became apparent.

I hope, for the sake of the commenter above, and many others in his position, that the Treasury revisits the issue of the abolition of taper relief. The point of the proposed legislation was to increase the tax paid by private equity barons, who, it was accepted, were paying comparatively little tax. The sad thing is that, in its clumsy, bumbling way, the Government has come up with a ’solution’ that increases significantly the tax burden on other people.

Labour MP Shahid Malik is not very happy at the moment. He was detained at a US airport, and had his luggage analysed for traces of explosives.

Understandable that he should be cross. However, when I started reading the story, I was expecting the reason for his anger to be along the lines of ‘just because you have a muslim name and are travelling with other muslims, it doesn’t mean you are a terrorist.’

But no. This is his complaint:

… I really do believe that British Ministers and Parliamentarians should be afforded the same respect and dignity at USA airports that we would bestow upon our colleagues in the Senate and Congress.

So is it that he has no problem with muslims being searched indiscriminately, so long as they are not ‘British Ministers or Parliamentarians’?

I wonder what his beloved constituents at Dewsbury think of that.

By the way, I am not commenting on the desirability or otherwise of muslims being searched by the American authorities. It is their country to act within as they see fit, subject to the limits of their laws. I am merely surprised at the stated reason for Shahid Malik’s annoyance.

So the Government now recognises that there is a ‘moral case’ for promoting the traditional family through the tax system?

Never mind that the Conservative Party has been saying this for a long time, and being accused by Labour of being ‘nasty’ and judgmental.

I am yet to be convinced that Labour actually recognise that marriage is actually the best state in which to bring up children. Of course not. This latest about-face is down to nothing more than political expediency.

And they have the cheek to accuse other people of ‘flip-flopping’.

And speaking of Labour’s U-turn, please remind me: who was it abolished the Married Couples’ Allowance for under 65s, in the first place?

Step forward, Mr G. Brown.

The Chancellor has just announced that spouses and civil partners may now transfer their tax-free allowances between themselves. The idea, I suppose, is that this would enable their heirs to receive more than the basic inheritance tax allowance.

Correct me if I’m wrong, but can the same effect not be achieved by couples structuring their wills to ensure this? And even after one of the couple have died, I would have thought it was still possible effectively to amend the will to achieve this result, by using a post-death variation.

If it is already possible to do all this, what exactly is the value of this new tax relief?

I would appreciate any enlightenment.

UPDATE. 8.23pm. Seems like my initial suspicion about this ‘tax relief’ has been proved right. Fraser Nelson of the Spectator is reporting that City accountants have raised the point that this so-called ‘tax relief’ can already be achieved by a couple structuring their wills properly. See also this article here.

These New Labour people just can’t stop spinning.

Just listening to Alistair Darling’s Pre-Budget Report. He has announced, with effect from April next year, the abolition of taper relief. Click here for the press notices (pdf).

The way taper relief works is that it reduces the chargeable gain when a capital asset is sold. This relief is available to everybody who sells, or otherwise disposes of, a chargeable asset. It is not a special relief claimed only by private equity barons.

The amount of taper relief available depends on whether the asset being sold can be classed as a ‘business asset’, and also, on how long the asset has been held. A business asset held for at least two years would attract the most generous taper relief rate. In such a case, only 25 per cent of the gain would be charged to tax. In the case of a taxpayer paying tax at the 40 per cent rate, this works out at an ‘effective rate’ of 10 per cent on the gain.

So, in summary, if you are a higher rate taxpayer, holding a business asset, and you have held it for at least two years, you end up paying capital gains tax on sale of only 10 per cent.

However, the Chancellor has just announced that taper relief will be abolished, and will be replaced by an 18 per cent tax rate.

This seems to equate to a tax rise on anybody who has held a business asset for at least two years. Including small business owners who are disposing of some of their capital assets.

So, in attempting to clobber private equity barons, New Labour has attacked every businessman in the land, some of whom can hardly afford it.

The Treasury is publishing consultation on the abolition of taper relief. I will be following closely to see the extent of the proposed abolition. If the detailed proposals bear out what we have been led to believe from the press notice, then small businesses should worry.

Over at Conservative Home, a thoughtful and well-written article by Donal Blaney, offering ten tips to the Conservative Party leadership on how to build on this weekend’s favourable news. Of the ten tips he gives, here are the six I like best:

• 1. Continue to campaign on traditional as well as non-traditional conservative themes.
• 2. Remain on the offensive against Gordon Brown.
• 3. Do not underestimate Gordon Brown again.
• 4. Stop gratuitously attacking the Tory Right.
• 5. Learn from the Quentin Davies fiasco.
• …
• 7. Ensure maximum commitment from the Shadow Cabinet.

Very good points. I hope the party leadership takes heed. You can read Donal Blaney’s article here.

Loud cries of ‘coward!’ everywhere.

What a humiliating climbdown. This is the result of weeks of strutting and smug swaggering. Let this be a lesson to politicians everywhere. And I would hope that the Conservative Party will learn from the humiliation of Gordon Brown. They should leave the well-deserved gloating to the political press and bloggers, and instead concentrate on working out and improving policies for the good of the country.

Iain has had a few digs at Brown today. He reminds us about the book Gordon Brown wrote on courage, and suggests that the publisher should perhaps demand their advance back. I know Iain’s only being tongue-in-cheek, but here is a suggestion: perhaps a coward is actually the best person to write a book on courage. There is an old African saying that runs thus:

‘We sometimes stand in the comfort of a coward’s compound and from there point out the ruins of a brave man’s house.’

The idea behind the proverb is that perhaps cowardice is a good vantage point from where to admire and recount the tales of braver men. Perhaps that is what Gordon Brown has been doing all along.

David Cameron’s speech is being hyped in the media today as ‘the speech of his life’. It is no such thing. At the start of the week, when there was despair in the Party, it was crucial that he excelled today. However, following the unexpected success of the past few days, the pressure on him has reduced considerably.

Anyway, here are a few things I would like to hear in his speech today.

Some acknowledgement, however passing, that the grammar school madness of a few months ago, was misguided. (Some hope. I don’t expect him to apologise for calling supporters of grammar schools ‘delusional’, but some humility would be fine.)

Something about social justice, picking up on the theme of Iain Duncan Smith’s speech yesterday. He should emphasise the role of Government, but just as importantly, the role of the community and the voluntary sector.

A promise about further tax cuts. No need for much detail, as Labour would only nick them. Just something further to indicate that tax cuts are part of the longer term strategy. But please, no repeat of that ’share the proceeds of growth’ expression. I’ve heard it enough times.

Something on Gordon Brown. No need for personal attacks of the Hazel Blears variety. Just enough to stress the point that:

• Gordon Brown cannot pretend that he had nothing to do with Government policy for the past ten years. Law and order breakdown, high tax burden, dire public services despite record funding, pensions shortfalls - Brown is a key part of the Government that presided over all this.
• Gordon Brown’s so-called no-spin politics is just another example of typical New Labour spin, yesterday’s Iraq stunt being a good example.

I would like to return to the humility theme I mentioned earlier. David Cameron should address the British people with humility. He should make the point that the Conservative Party is here to serve, and not to get in people’s way unnecessarily. Politicians do not know better than the people, so they should be wary of lecturing people about how to live their lives. The point of a Conservative Government is to enable people to empower themselves. In this way, a proper Conservative Government is far more preferable to the current Government with its the smug, ‘we-know-best’ attitude, which was on full display at the Labour Conference last week.

Above all, David Cameron should make it plain that the Conservative Party will govern for all of Britain. I don’t think it will be hard to make that point after some of the speeches we have heard this week. I must say, there has been much commendable policy detail in all the main speeches. Following this conference, nobody can, with any seriousness, make the charge that it is difficult to know what the Party stands for. Whether or not an election is called, the Conservative message has started to come together, and that is something I very much welcome.

UPDATE. 3.30pm. Well! What a wonderful speech, addressed the issues of the day without resorting to personal attacks. He ascended above party politics, and came across as a statesman. The right dose of humility, enthusiasm aplenty, and a very clear idea of what a Conservative Government under David Cameron would do. Well done.

Now that the Conservative Party has enjoyed somewhat favourable headlines for two days running, one wonders what publicity-grabbing stunt Gordon Brown will want to pull, in order to attract attention to himself.

If he manages to sit through David Cameron’s speech (or even this whole week), without succumbing to the temptation to pull such a stunt, I’ll eat my hat.

Never before have I seen a politician so insecure.

UPDATE (2 October 2007). Gordon Brown arrived in Iraq this morning, amid talk of a ’significant reduction in troops’. I thought that under this new ‘no-spin’ era, such announcements were supposed to be made first to Parliament. Let’s wait and see.

Is Gordon Brown about to exploit our longsuffering troops, just to make himself look good?

FURTHER UPDATE. My question in the previous paragraph has just been answered with a resounding ‘Yes’. He has announced a cut in the troops by 1,000. Good that more troops are coming home soon (I’ll believe it when I see it), but sad that this is only being done today for the sake of one man’s vainglory.