Contact: Jamie Harley
Deloitte
Public Relations
+44 20 7303 5037

From 6 April 2008, Capital Gains Tax (CGT) moves to a flat rate of 18% and will become a much more substantial deal cost for business owners.

To date, the optimum capital gains tax rate has been 10%, which was seen by many entrepreneurs as an acceptable cost on an exit. Clearly 18% is significantly higher and may affect the decision whether or not to sell.  An entrepreneur with a business worth £5 million will face an additional tax cost of £400,000.

Sam Hart, director of Entrepreneurial Business at Deloitte, said: “On the face of it, the change in the Capital Gains Tax (CGT) rate increases significantly the rate of tax on a sale of a business. However, there will be winners from these simplification measures including those who have held business assets for less than two years and therefore faced CGT rates of either 20% or 40%.

“For some, it will bring greater clarity and certainty. Frequently, entrepreneurs expect to pay 10% on the sale of their business, only to find that due to the complex changes in taper relief since 1998 the actual tax rates are higher.  The certainty of a simple 18% rate may be welcomed by these individuals.

Of course, there are winners from the Government’s proposals.  These will include individuals selling assets, such as buy to let properties, which would previously have been subject to a tax rate of 24% after 10 year's ownership.  From April 2008 they can benefit from 18% tax after day one.  Shareholders in fully-quoted companies (who are not employees) will also benefit.

Given the proposed increase in CGT rates, it is likely that we will see a short term flurry of activity in the sale of entrepreneurial businesses.  While larger businesses may be impaired by uncertainty in the credit markets, owners of smaller businesses may look to accelerate disposals to take advantage of the 10% rate in the last few months of its existence.  The critical thing will be to make sure that the right price is achieved; a low price, albeit with a favourable tax rate won’t help!”

Notes to editors:

About Deloitte
In this press release references to Deloitte are references to Deloitte & Touche LLP, which is among the country's leading professional services firms.  Deloitte & Touche LLP is the United Kingdom member firm of Deloitte Touche Tohmatsu ("DTT"), a Swiss Verein whose member firms are separate and independent legal entities. Neither DTT nor any of its member firms has any liability for each other's acts or omissions. Services are provided by member firms or their subsidiaries and not by DTT. Deloitte & Touche LLP is authorised and regulated by the Financial Services Authority.