Taxman faces avoidance surge over CGT changes

The radical reform of capital gains tax announced in the pre-Budget report
could cause a massive increase in tax avoidance schemes, advisers have
predicted.

Experts said the 18% flat rate of CGT would prompt taxpayers to take
advantage of any loopholes in the new, simplified regime.

‘People will be looking to devise schemes that disguise income as investment.
With no more time limits on capital gains the possibility is there to classify
short-term income as a capital gain and pay 18% rather than 40%. Anti-avoidance
is in place, but there will be opportunities,’ said Bill Dodwell, head of tax
policy at Deloitte.

Cat-and-mouse games between the taxman and taxpayers over avoidance schemes
relating to the changes in capital gains tax may be the most daunting prospect
of all for HM Revenue & Customs, as the government desperately defends the
radical reforms.

A combination of business groups and trade unions have opposed the changes,
while the Conservatives have pledged to oppose the changes in parliament.

A flurry of activity is expected over the next few months as wealthy
investors work out whether or not to use up capital gains allowances that have
built up over many years before the reliefs expire.

Owners of personal assets such as fine wine and paintings will see their tax
rate drop after April, but business assets may be put on the market in order to
benefit from the rules in place at the moment.

Small business owners might bring forward retirement to make the most of the
value stored up in their businesses, and investors in venture capital trusts and
enterprise investment schemes ­ two products that Gordon Brown gave tax breaks
to ­ may also sell up, according to Richard Allen, director of tax research at
tax consultancy Allenbridge.