CGT: what deal for entrepreneurs?

Mark Prisk, the newly-appointed business minister, has been reported as saying George Osborne will protect entrepreneurs from the proposed increases in CGT.

“What George Osborne has made very clear is that we are going to have a generous package for entrepreneurs. It is as close to his heart as it is to mine,” he told the Telegraph’s Richard Tyler.

“I am very confident as someone who worked in this role in Opposition and worked very closely with my Treasury colleagues that we have a shared agenda.”

While Prisk’s reassuring words are welcome, we’ll have to wait and see if the proof is in the pudding – what will Osborne announce on June 22?

As a reminder, the coalition government’s position on CGT at the moment is that although it will look at taxing capital gains at “rates similar or close to those applied to income”, it will have “generous exemptions for entrepreneurial activities”. 

As Tyler points out in his blog, “generous exemptions” can be read in a number of ways – if the rate for non-business assets, quoted company shares and property assets rises to near to the 40 per cent and 50 per cent income tax rates, then 25 or 30 per cent could be seen as “generous”. 

This wouldn’t be good enough.

At a time when the economy must start to grow again, everything must be done to encourage enterprise and grow businesses that will create prosperity and jobs in the future.

Speaking to Entrepreneur Country, Betfair founder Ed Wray said that it would truly disincentivise new businesses. “In my opinion, startups in the UK should not attract CGT of more than ten per cent. What the UK government foregoes in capital gains by lowering the rate, it will make up in tax take elsewhere, in addition to all the benefits of creating global leading firms. The only cost to the Treasury of a lower CGT rate is an opportunity cost – if new companies are successful, then the Treasury gains through VAT, PAYE and National Insurance, not to mention corporate tax.”

Quite right. The proposals to increase CGT – even with “generous exemptions” for entrepreneurs – would threaten Britain’s future for a very modest Treasury return. Just leave it alone. 

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