For many people, taxation is a necessary evil which must be levied to pay for vital public services. For Government, the balancing act is whether they can change the rates of taxation without affecting the overall amount of tax collected.
Therefore, the changes to capital gains tax announced last week by Alastair Darling could have far ranging consequences for the UK economy, especially if it reduces the number of firms paying tax.
Simply put, the Chancellor of the Exchequer has set a new flat rate of 18 per cent for capital gains tax, a cut from the previous rate of 40 per cent.
On first glance, this clearly looks like a major tax benefit but for many small business owner managers, it will be a massive blow as they will actually be facing a tax increase. Let me explain.
One of the best received policies developed by Gordon Brown in his drive to create an enterprise economy was the introduction of a 10 per cent taper relief for businesses.
Simply put, those who invested their time and money in building up businesses would pay capital gains tax at this lower 10 per cent rate (and not 40 per cent rate like the rest of the population). As a result, they would rightly be rewarded if they kept the business going for a number of years.
However, these new changes now mean that entrepreneurs will be paying 80 per cent more tax if they sell their business.
What effect will this have on the Welsh economy?
It will certainly act as a disincentive for those who want to start up a business in the future, reducing the number of new businesses.
It may also force many owner managers across the region to sell up before the tax changes come into force next year, reducing the number of firms in the region.
In addition, many entrepreneurs simply cannot afford a private pension when they are pouring all their effort and money into their business. As a result, they rely on the eventual sale of their business to give them security for the future.
That will certainly be in jeopardy now through this unwarranted increase in taxation.
It will also create a massive disincentive for those who are looking to invest in local business, thus cutting off a vital source of finance. Given the lack of support from the Assembly for new firms, this will be yet another blow to enterprise in the region.
The only real winners here are the owners of second homes and buy to let properties across Wales, who will be rubbing their hands, and wallets, with glee at a cut of 22 per cent in their capital gains tax.
With enormous pressures on local housing markets already, I don't need to spell out the potentially disastrous consequences of incentivising individuals to buy investment properties in many parts of Wales.
Small businesses are the lifeblood of the local economy, creating wealth and prosperity, employing thousands of people, and delivering products and services.
At a time when Wales needs more, not less, entrepreneurs, this is no time to introduce yet another misguided tax policy which will have a serious and long term effect on the entrepreneurs who drive our economy.
Therefore, the changes to capital gains tax announced last week by Alastair Darling could have far ranging consequences for the UK economy, especially if it reduces the number of firms paying tax.
Simply put, the Chancellor of the Exchequer has set a new flat rate of 18 per cent for capital gains tax, a cut from the previous rate of 40 per cent.
On first glance, this clearly looks like a major tax benefit but for many small business owner managers, it will be a massive blow as they will actually be facing a tax increase. Let me explain.
One of the best received policies developed by Gordon Brown in his drive to create an enterprise economy was the introduction of a 10 per cent taper relief for businesses.
Simply put, those who invested their time and money in building up businesses would pay capital gains tax at this lower 10 per cent rate (and not 40 per cent rate like the rest of the population). As a result, they would rightly be rewarded if they kept the business going for a number of years.
However, these new changes now mean that entrepreneurs will be paying 80 per cent more tax if they sell their business.
What effect will this have on the Welsh economy?
It will certainly act as a disincentive for those who want to start up a business in the future, reducing the number of new businesses.
It may also force many owner managers across the region to sell up before the tax changes come into force next year, reducing the number of firms in the region.
In addition, many entrepreneurs simply cannot afford a private pension when they are pouring all their effort and money into their business. As a result, they rely on the eventual sale of their business to give them security for the future.
That will certainly be in jeopardy now through this unwarranted increase in taxation.
It will also create a massive disincentive for those who are looking to invest in local business, thus cutting off a vital source of finance. Given the lack of support from the Assembly for new firms, this will be yet another blow to enterprise in the region.
The only real winners here are the owners of second homes and buy to let properties across Wales, who will be rubbing their hands, and wallets, with glee at a cut of 22 per cent in their capital gains tax.
With enormous pressures on local housing markets already, I don't need to spell out the potentially disastrous consequences of incentivising individuals to buy investment properties in many parts of Wales.
Small businesses are the lifeblood of the local economy, creating wealth and prosperity, employing thousands of people, and delivering products and services.
At a time when Wales needs more, not less, entrepreneurs, this is no time to introduce yet another misguided tax policy which will have a serious and long term effect on the entrepreneurs who drive our economy.
Comments
Small Firms Create Jobs
Jobs = Votes
However, I am surprised that no-one else has picked up on the second homes issue, especially given its prominence in Wales.