The TUC has called on Alistair Darling to resist business calls for him to do a U-turn over changes to Capital Gains Tax (CGT) in the pre-budget report but have suggested tweaks to the proposals so that they better meet government objectives and deal with unintended consequences of the proposals that have now become apparent.
In a letter to the Chancellor, TUC General Secretary, Brendan Barber, says that 'it is vital that you resist' business pressure to abandon the changes because they 'simplify a highly complex tax regime', 'acknowledge that under the current regime some individuals were paying very small amounts of tax on very considerable gains', and accept 'the widespread public concern about the very low tax paid by private equity partners on their carried interest returns'.
The TUC says that the government should go further and tweak the proposals to make the tax more progressive, to increase incentives for long term asset holding rather than speculation and encourage genuine venture capital and business start-ups. The TUC also warns that different top rates for capital gains and income will lead to an increase in tax avoidance as accountants attempt to tax income as capital.
TUC General Secretary Brendan Barber said, 'The Chancellor was right to change the Capital Gains Tax regime and he should resist calls to do a U-turn. He should not only stick to his 18 per cent CGT guns, but should go further to crack down on speculators and tax avoidance schemes. He should also tweak the proposals to deal with some of the unintended consequences that have now become apparent.
'Our suggested changes will make speculators and private equity fat-cats pay a little more and allow long term investors building up businesses and employee share savers pay a little less, while minimising the opportunities for clever accountants to dream up new tax avoidance schemes.'
The TUC suggests five changes:
* CGT should be kept at 18 per cent for business disposals, but there should be one per cent relief for each year the asset is held for the first eight years.
* Shares held in employee Save as You Earn schemes should be treated as business assets and should be subject to the same 18 per cent rate and reliefs.
* CGT should be charged at 18 per cent for non-business assets but any gain that an individual makes that take their income into the 40 per cent income tax band should be taxed at 40 per cent, but with a two per cent relief for each year the asset has been held up to a minimum rate of 18 per cent.
* The arrangement with the British Venture Capital Association under which returns to the carried interests of private equity partners are treated as capital gains for tax purposes should continue, but only in respect of those funds that restrict their total investment in any one company to £5 million or below. This will ensure that this beneficial tax arrangement only applies to genuine venture and start-up capital investments where the risk involved justifies this treatment. Carried interest on larger investments should be treated as income for tax purposes.
* To clamp down on tax avoidance there should be a general power to stop income being treated as a capital gain simply to reduce a tax bill.
Monday, 22 October 2007
TUC says stick to your guns, Darling
On the changes to CGT announced in the PBR, here's a lift from the TUC -