Tax Grab Wrecks Retirement Dreams; Business & Management

The Mail on Sunday (London, England), March 22, 1998 | Go to article overview

Tax Grab Wrecks Retirement Dreams; Business & Management


Byline: RUTH SUTHERLAND

THOUSANDS of small-business owners will have retirement plans disrupted by tax measures tucked away in the Budget small print.

As part of a sweeping reform of capital gains tax, Chancellor Gordon Brown is phasing out retirement relief.

His move will force many small entrepreneurs, who are relying on the profits from the sale of their businesses for a comfortable old age, to pay tens of thousands of pounds extra tax, while the tax bills of multimillionaire tycoons will be slashed.

Financial Mail is writing to the Chancellor to ask him to change these measures immediately.

Leading accountant Horwath Clark Whitehill is backing our stance and is also expressing its concerns in a letter to Brown.

Under retirement relief rules, business owners aged 50 or over do not have to pay capital gains tax on the first [pounds sterling]250,000 of profit when they sell and only half the next [pounds sterling]750,000 profit is taxed. Gains over [pounds sterling]1 million are taxed at 40%.

Brown has overhauled the system so that all profit on business assets held for 10 years or more from April 6 this year will be taxed at a special reduced rate of 10%, to encourage long-term investment. But he is also phasing out retirement relief over the next five years, starting in April 1999.

To understand the impact of the changes, imagine a small businessman of 50 selling his company for a profit of [pounds sterling]250,000. If he sells before April next year, he will pay no tax.

If he plans to retire at 55 in 2003 and realises the same [pounds sterling]250,000 profit, he will have to pay [pounds sterling]55,000 tax because retirement relief will have gone but he will not yet have built up a 10-year holding to qualify for the 10% rate.

Even if he delayed his retirement to 2008 to benefit from the new long-term rate, he would face a [pounds sterling]25,000 bill.

By contrast, a prosperous entrepreneur selling for a profit of [pounds sterling]2 million would save [pounds sterling]110,000 in tax by waiting five years to dispose of his business. …

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