Capital gains tax increase attacked by business groups

October 15, 2007 11:16 AM

An open letter from the British Chambers of Commerce, the CBI, the Federation of Small Businesses and the Institute of Directors to the Chancellor Alistair Darling has attacked last week's changes to capital gains tax, which saw the abolition of taper relief and the introduction of a new 18 per cent flat rate on all assets. For business assets held for longer than two years, this represents an 80 per cent tax rise. This rise comes on top of the rise in the small company rate of corporation tax from 19 per cent to 22 per cent, which was announced in March.


Business groups are right to be angry at these changes. A simplified capital gains tax regime is welcome, but not one with rates of tax that are penalising to small businesses, who have already suffered so much. 


Importantly, this episode also shows how difficult it is to make tax changes that raise the same amount of revenue (or slightly more). Meaningful tax simplification should be accompanied by a cut in the overall burden of tax. To achieve that, politicians need to get spending under control. 

An open letter from the British Chambers of Commerce, the CBI, the Federation of Small Businesses and the Institute of Directors to the Chancellor Alistair Darling has attacked last week's changes to capital gains tax, which saw the abolition of taper relief and the introduction of a new 18 per cent flat rate on all assets. For business assets held for longer than two years, this represents an 80 per cent tax rise. This rise comes on top of the rise in the small company rate of corporation tax from 19 per cent to 22 per cent, which was announced in March.


Business groups are right to be angry at these changes. A simplified capital gains tax regime is welcome, but not one with rates of tax that are penalising to small businesses, who have already suffered so much. 


Importantly, this episode also shows how difficult it is to make tax changes that raise the same amount of revenue (or slightly more). Meaningful tax simplification should be accompanied by a cut in the overall burden of tax. To achieve that, politicians need to get spending under control. 

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