Alistair Darling seems to have achieved the unprecedented in uniting almost every interested group against his proposed changes to Capital Gains Tax. In essence, from next April, business tax payers, including entrepreneurs and those in holding shares in their employing company will see their tax bills rise in most instances. Many private investors, including second property owners will pay much lower rates of tax, especially if they are high rate taxpayers.
To recap, the Government had been under pressure to ‘do something’ about the unseemly profits being hoovered up by the nasty private equity firms taking over our nice British companies, improving how they are run and increasing the their profits. History tells us that these situations tend to sort themselves out, eventually. Existing owners of companies were, surely, going to work out that they were losing out eventually, were they not. They may have even started to scrutinise how those companies were run and wonder whether it might be done a little better.
I cannot see that this modest tax hike will bring private equity buy outs to a halt, of much more importance to them is the cost of borrowing money, which has been rising, and the willingness of existing owners to sell up cheaply, which has been decreasing.
Anyway, if the Government’s track record on reform is anything to go by, this ‘simplification’ of CGT will be rolled back quite a bit with some equally poorly thought through amendments. Given the politician’s natural fear of bad headlines, I do wonder why they do not set about making these changes over time. Of course, whilst that approach may prevent disasters it does mean that there would be fewer sexy grand plans. No bad thing.
