Are the CGT proposals as grim as many SME's claim?

Are the Government’s Capital Gains Tax proposals as grim as many small and medium sized businesses claim? Property mogul Jim Moore, founder of Inside Track and Instant Access Properties - the UK’s biggest buy-to-let education and investment company – takes a closer look…..

"When I first heard the Government is to slash Capital Gains Tax from 40% to 18% I thought it sounded good. But if it’s really as good as it sounds, why are so many small businesses against the Government’s plans?

• MarkLee says:
• As of 6 April 2008 the rate of CGT on speculative gains will be less than half the top rate of Income tax. This is much as it was when I qualified as a chartered accountant and first starting advising on tax over 25 years ago. Then the top rate of income tax was 83% and the CGT rate was 30%.
  
  As light follows day so will tax planning now focus on ways to convert what would otherwise be income into short-term gains with a consequential reduction in tax thereon from 40% to 18%.
  
  The Treasury have scored another own-goal. The new regime will result in predictable behavioural changes that will reduce the tax take. Is it acceptable or unacceptable tax avoidance? That depends on your perspective.
  
  To my mind it's much the same as when the 0% small companies rate of Corporation Tax was introduced. The Treasury ignored predictions of behavioural change (and the consequential incorporation of thousands of small businesses to reduce the tax take on their earnings). The tax change was seen as an irresistible gift to small businesses if they were prepared to incorporate. So they did. As a result the 0% rate was subsequently withdrawn (after another complex and failed attempt to limit the attraction of tax motivated incorporations).
  
  Much the same consequence will ensue after 6 April with the effective encouragement to structure transactions so that what would otherwise be income will instead be taxable as capital gains.
  
  It is human nature to want to arrange one's affairs such that the minimum amount of tax is payable thereon (in accordance with the law). Tax changes that effectively create incentives to do so will have the inevitable consequence of encouraging this. And yet, really, most business people and entrepreneurs would prefer a simpler tax system where they need only focus on generating more profits.
  
  Mark Lee - founder, Tax Advice Network