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.