Pre Budget Report - October 2007

October 11th, 2007

Not so much a pre-budget report as a budget, the general thrust seems to be one of lower economic forecasts with chnages to Inheritance Tax designed to stump the other political party, and changes to Capital Gains Tax to stump the Private Equity brigade.

And the real effect?

Inheritance Tax changes are an improvement in that there is now no need to pay for the tax planning that was required to achieve the same effect. Probable losers here are the firms of solicitors that have drummed up an industry out of such plans. The backdating of the changes to apply to existing widows/widowers should have an almost immediate benefit for many.

Capital Gains Tax changes appear to simplify the current regime. A single rate and the lack of taper relief calculations will certainly assist my aging memory-banks and might save some money by allowing me to invest in less powerful computers (as they need to do less calculations). Will it be that simple? I doubt it. There is much detail to be produced, and that is usually where the devil likes to lurk.

And the losers? Well, private equity appears to have lost 8% to CGT (the increase from their minimum rate of 10% to the new flat-rate of 18%). But they have said that they would suffer 15-20% during the hearings before parliamentary sub-committees that have been pursuing them for political correctness. We’ve known for some time that private equity would be hit at some point.

Also losing are the millions of small businesses that have similarly lost 8% on the increase. The loss of any incentive to hold business assets will be an expensive addition to the tax bill of the SME. The gainers will be those holding shares and property who previously had to hold those asssets for at least 10 years in order to achieve a CGT rate of 24%.

Also included in the smallprint is a pledge to stop couples frm income-splitting in the style of Arctic Systems! 

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