Lib Dem taper plan set to impact on private equity

Lib Dem taper plan set to impact on private equity

Liberal Democrat plans to drop taper relief on capital gains tax will force private equity bosses to restructure the way they pay themselves, a tax adviser has claimed

The party held its conference in Brighton this week, discussing plans to drop
the relief introduced by chancellor Gordon Brown, as well as the introduction of
a range of green taxes and limits on the amount of tax relief higher earners
receive on pension payments.

Mike Warburton, a tax adviser, said the taper relief changes would hit the
private equity practice of paying in shares.

Taper relief reduces the capital gains tax on business assets to 10% after
two years.

Without the relief, private equity managers would tend to receive straight
bonuses taxed at 40%, since the capital gains tax, also a 40% rate, would no
longer be advantageous.

The Lib Dems told Accountancy Age this week that they had not researched the
behavioural impact of its policies.

The so-called ‘Fairer, Simpler, Greener’ tax package, drawn up by a
commission set up by former leader Charles Kennedy and publicly endorsed by his
successor Sir Menzies Campbell, proposes

abolishing capital gains tax taper relief, reducing the CGT annual allowance
from £8,800 to just £1,000 and ending higher rate tax relief on pension
contributions, limiting relief to 20p in the pound – the new basic rate on
income tax, reduced by 2p in the pound.

The party believes the changes will raise £8.8bn, but on the premise that
affected taxpayers would continue with present patterns of investment.

The changes are key planks of the Lib Dem package, with other proposed
technical changes including a rise in the employee threshold for national
insurance contributions to the same as that for income tax and seeking to place
NICs on the same annual basis as income tax.

On the green side, the package includes ‘reforming the existing climate
change levy, indexing it annually and eventually changing it into a simpler
carbon tax’, according to documents.

Shadow Lib Dem chancellor Vince Cable said: ‘There was no justification for
taper relief when it was introduced by Gordon Brown, and the case has not
changed.’

For more go to www.libdems.org.uk

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