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LEGAL FINANCE: Time bomb alert in overhaul of CGT system.

Changes to the Capital Gains Tax system outlined in Chancellor Alistair Darling's Pre-Budget Report is the fiscal equivalent of a time bomb, it was claimed today.

Black Country accountants CK say the fine print will not be known until next spring.

Nevertheless, the proposed overhaul of CGT and, in particular, the removal of business asset taper relief and indexation relief is already causing turmoil in the corporate finance market place.

As a result many sellers are trying to complete deals before the March 2008 deadline when the proposed effective rate of CGT will increase by a massive 80 per cent.

However, Iain Johnstone, corporate finance partner of CK, fears the proposed changes will affect not just what happens now and in the future but also the past.

He warned: "There is a 'ticking bomb' in relation to transactions that have been completed in the past, some of them many years ago.

"It is common practice, particularly in the SME market place, for sellers to take part of the proceeds from a business sale by way of deferred consideration or loan notes.

"Until now loan notes have benefited from business asset taper relief when repaid, thus restricting the effective rate of Capital Gains Tax to ten per cent. But loan notes that are repayable after April 5 will be taxed at the much higher rate of 18 per cent. Sellers will undoubtedly have taken the relatively low tax rate into account when agreeing a sale price and will suffer an unexpected 80 per cent increase in the tax they have to pay."
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Publication:The Birmingham Post (England)
Date:Nov 30, 2007
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