Darling's CGT changes are 'better than expected'
10 September 2012
Chancellor Alastair Darling's concessions to his original Capital Gains Tax proposals, that would have had a significant effect on owners of recruitment agencies selling their busineeses had they come
Chancellor Alastair Darling's concessions to his original Capital Gains Tax proposals, that would have had a significant effect on owners of recruitment agencies selling their busineeses had they come into effect on 6 April, have received a mixed welcome.
Under the new proposals, the 10% flat rate will remain for the first £1m of gains for entrepreneurs who sell their businesses, instead of 18%. This is effectively an increase of 80%, after he announced that taper relief woud be abolished when he first announced the CGT reforms last autumn.
David Hughes, a partner at Saffery Champness's professional and consultancy services group, told Recruiter: "Most of the recruitment industry will fit the bill for the lower tax rate, so this concession is welcome."
Hughes said it would be good news, for example, if three recruitment agency share holders each had capital gains of £1m each from selling their agency.
However, he added: "This £1m limit would be cumulative over the course of a lifetime, so that if a recruiter made a profit of £500,000 selling one business this year, and £700,000 selling another next year, he or she would pay 10% on £1m and 18% on the £200,000.
"It's still worse than it was, but better than we expected when the change was first announced."
Julie O'Neill, joint managing director at McCall Mergers & Acquisitions, told Recruiter: "It's good for smaller businesses up to the £1m limit. For them there appears to be relief."
However, she said that the announcement wasn't such good news for larger businesses where the £1m limit would be breached. She said the changes would have a negative influence on serial entrepreneurs as the £1m limit was a lifetime limit. "For serial entrepreneurs there needs to be an incentive to reinvest [in new businesses]. I would've thought that as a country we need reinvestment in the recruitment sector," she added.
It was too early to say what effect if any the changes would have on merger and acquisitions activity in the future, O'Neill added.
Under the original proposals announced by the Chancellor in October 2007, some owners of recruitment agencies who sold their business would have seen the Capital Gains Tax on disposal of their assets rise from 10% to 18%, from 6 April this year.
Under the new proposals, the 10% flat rate will remain for the first £1m of gains for entrepreneurs who sell their businesses, instead of 18%. This is effectively an increase of 80%, after he announced that taper relief woud be abolished when he first announced the CGT reforms last autumn.
David Hughes, a partner at Saffery Champness's professional and consultancy services group, told Recruiter: "Most of the recruitment industry will fit the bill for the lower tax rate, so this concession is welcome."
Hughes said it would be good news, for example, if three recruitment agency share holders each had capital gains of £1m each from selling their agency.
However, he added: "This £1m limit would be cumulative over the course of a lifetime, so that if a recruiter made a profit of £500,000 selling one business this year, and £700,000 selling another next year, he or she would pay 10% on £1m and 18% on the £200,000.
"It's still worse than it was, but better than we expected when the change was first announced."
Julie O'Neill, joint managing director at McCall Mergers & Acquisitions, told Recruiter: "It's good for smaller businesses up to the £1m limit. For them there appears to be relief."
However, she said that the announcement wasn't such good news for larger businesses where the £1m limit would be breached. She said the changes would have a negative influence on serial entrepreneurs as the £1m limit was a lifetime limit. "For serial entrepreneurs there needs to be an incentive to reinvest [in new businesses]. I would've thought that as a country we need reinvestment in the recruitment sector," she added.
It was too early to say what effect if any the changes would have on merger and acquisitions activity in the future, O'Neill added.
Under the original proposals announced by the Chancellor in October 2007, some owners of recruitment agencies who sold their business would have seen the Capital Gains Tax on disposal of their assets rise from 10% to 18%, from 6 April this year.
