Private Equity Comment
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Private Equity Comment

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2 Pages
English

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COMMENT FROM SJ BERWINPrivate Equity CommentTopical and incisive commentary on legal and tax developments for theEuropean Private community25 June 2010A fresh approach to tax policy in the UK?The new British government's bold strategy for reducing the UK's record deficit was unveiled on Tuesday. Dubbed the "axe and tax"budget by some headline writers, the announcements included a range of measures – said by the government to be both "fair" and"unavoidable" - that will have a significant impact on individuals and businesses for years to come. (To read our summary, clickhere.)For the private equity and venture capital community, much of the pre-budget concern had focussed on capital gains tax rates, withannouncements from the coalition government leading many to expect a rate hike of anything up to 32% - from 18% to 40% oreven 50%, the highest marginal income tax rate. So, having been prepared for something worse, the 10% rise – to a rate of 28%for higher and additional rate taxpayers – was a relief to many. But the increased rate was not accompanied by any special measures for those investing in businesses, and the British PrivateEquity and Venture Capital Association (BVCA) promptly pointed out that sighing with relief should not forget that a 28% rateis the "second worst" in its table of international competitors, with only France having a higher headline rate. It is true that thelifetime allowance for "entrepreneurs relief" was increased ...

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COMMENT FROM SJ BERWIN
Private Equity
Comment
Topical and incisive commentary on legal and tax developments for the
European Private Equity community
25 June 2010
A fresh approach to tax policy in the UK?
The new British government's bold strategy for reducing the UK's record deficit was unveiled on Tuesday. Dubbed the "axe and tax"
budget by some headline writers, the announcements included a range of measures – said by the government to be both "fair" and
"unavoidable" - that will have a significant impact on individuals and businesses for years to come.
(To read our summary, click
here.)
For the private equity and venture capital community, much of the pre-budget concern had focussed on capital gains tax rates, with
announcements from the coalition government leading many to expect a rate hike of anything up to 32% - from 18% to 40% or
even 50%, the highest marginal income tax rate.
So, having been prepared for something worse, the 10% rise – to a rate of 28%
for higher and additional rate taxpayers – was a relief to many.
But the increased rate was not accompanied by any special measures for those investing in businesses, and the British Private
Equity and Venture Capital Association (
BVCA) promptly pointed out that those sighing with relief should not forget that a 28% rate
is the "second worst" in its table of international competitors, with only France having a higher headline rate.
It is true that the
lifetime allowance for "entrepreneurs relief" was increased substantially, so that the first £5 million (€6.07 million) of lifetime gains
which arise from the sale of an interest in a business or in shares in a company for which an individual works, and in which he or
she has at least 5% of the equity, will be taxed at 10%.
That relief - which is now worth up to £900,000 (€1.09 million) – is
important for owner managers and some business angels, but leaves holders of other business assets paying the full rate (with no
indexation allowance to offset the impact of inflation).
Also significant, if carried through, is the announcement that the government is to implement "a new approach" to tax policy.
A
discussion document, which picks up on work started under the previous government, includes a commitment to "restore the UK tax
system's reputation for predictability, stability and simplicity", and sets out how the government will make sure the clear policy
objectives are set out for any reform, that the timetable is clear and that at least three months warning is given for "the majority" of
changes.
There are proposals for more rigorous scrutiny of draft legislation, more detailed consultation, with more details about
costs and for a focus on simplicity (a new Office of Tax Simplification is planned, for example).
There is also a commitment to
review changes to see whether they have achieved their objective.
While many practitioners are sceptical about the long term impact of these proposals, it is undoubtedly true that changes along
these lines would be welcome (and are overdue), though some are rightly worried about the scope of a suggested "general anti-
avoidance rule" to replace specific, complicated anti-avoidance measures.
Whether one sees the changes to capital gains tax as
an early example of this approach - a widely trailed rise, discussed openly in the media and among politicians, and ultimately
delivered as a clear and simple rate change (albeit within hours of being announced) – will be a matter of debate.
But if the
Chancellor's statements do herald a new approach to the development and implementation of tax policy, and if the desire to restore
confidence in decision making is supported by real changes in practice, then it will be a significant and very positive change for
business and investors alike.
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