PBR 07: Ernst & Young slams ‘meddlesome fiddling’

E&Y has issued scathing criticisms on Alistair Darling’s CGT taper
reform, which will see a capital gains flat rate of 18% imposed from April next

Paul Davies, UK head of tax said, ‘The changes we saw today are clearly
motivated by the heightened focus on private equity. We are extremely
disappointed with these proposals as they threaten to undermine the entrepreneur
culture that has blossomed over the last decade.’

Davies added:’It also represents a fundamental retreat from his predecessor’s
key policy. The taper applies to many more areas than private equity and this
will increase the tax paid by many employees of companies which offer other
share incentives.’

Darling also announced aviation tax changes designed to put £520m in the
taxman’s coffers by 2010/11, but E&Y gave the move short shrift.

Chris Sanger, head of tax policy at Ernst & Young, said: ‘The changes on
Air Passenger Duty mark a new extreme of meddlesome fiddling. For just a year,
until November 2009, the airlines which operate a single business class model
will now have to pay the highest rate of APD.

‘In order to achieve this, HMRC is creating arbitrary definitions around the
detail of plane seating.The air passenger industry now has a year of
consultation ahead during which it will have to wrestle with proposals for the
introduction of a single tax per plane, rather than the current APD.’

Despite Darling’s IHT overture being cleverly targeted in its opinion, E
&Y experts said that the measures did not go as far as they could have done.

His proposals fell far short of what some had predicted, said tax partner
Patrick Stevens: ‘Although inheritance tax is only paid by about 35,000 people –
according to government figures – it remains a highly contentious tax as far
more people expect to have to pay in the future.’

The Big Four firm also issued a warning that non-doms could be next in the
firing line despite Darling sparing them in the PBR.

Tax partner Andrew Tailby Faulkes: ‘The chancellor has resisted a knee jerk
reaction to the conservatives’ proposal of a flat annual charge on resident
non-domiciliaries. Instead he will consult with a view to early legislation, one
of the proposals being a levy after seven years of living in the UK and a higher
charge after 10 years. This could be a blow to many RNDs, who can currently
enjoy the favourable “non dom” tax regime in the UK for far longer than that.’

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