Entrepreneurs voice CGT fears in letter to chancellor

Nearly 100 entrepreneurs have signed a letter to the chancellor of the exchequer outlining their concerns over plans to raise the rate of capital gains tax (CGT).

The signatories, all members of entrepreneurial membership organisation The Supper Club, have urged the government to ensure that the plans do not punish those most likely to drive the economic recovery, as well as offering a proposal for how this could be avoided.

“Our belief is that any blanket increase to the rate of CGT will penalise those most likely to facilitate a recovery: the entrepreneurs (and their investors) behind our fast growing businesses, the only likely source of new job creation in view of public sector cutbacks,” the letter said.

The Conservative-Lib Dem coalition government has already confirmed its intentions to bring CGT rates for ‘non-business assets’ in line with income tax levels to tackle the deficit (a key component of the Lib Dem election manifesto), which could see the current rate of 18% increased to 40% or even 50%.

Although the government has promised ‘generous exemptions for entrepreneurial business activities’, it has faced criticism for failing to expand on what will and will not qualify for these concessions.

Last month, accountancy firm Ernst & Young also warned that this uncertainty could prompt those currently looking to sell to rush through the process, and could even trigger a ‘flurry of corporate disposals’.

As well as discouraging investment in growing businesses and threatening future job and wealth creation, the letter argues that a CGT hike could even be counter-productive to the Treasury, by prompting entrepreneurs (who already generate significant revenue for the government through corporation tax, income tax and national insurance) and the investors that support them to move overseas.

“Evidence suggests that any such increase is unlikely to provide additional tax revenues anyway,” it argues.

The letter calls for a taper relief system, similar to the one abolished by Labour in April 2008, to encourage long-term investment in growing businesses.

“It is our belief that any increase in the headline rate of CGT be accompanied by the introduction of a taper relief reducing the CGT burden by 10% for each year an asset is held to a zero rate. [This] will both simplify CGT overall and encourage long term investment,” it says.

Among the letter’s signatories are Susanna Simpson, founder of Limelight PR, Graham Bosher, founder of healthy snack delivery service Graze.com, Andrew Long, co-founder of concierge service Ten Lifestyle Management, Jonathan Quin, co-founder of currency exchange broker World First, Nick Claxson, founder of IT firm Comtec and James Merrett, co-founder of bespoke travel company Black Tomato.

The government is expected to confirm its CGT policy in the emergency Budget on 22 June 2010.

© Crimson Business Ltd. 2010