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 New landscape for CGT in share sales: Abolition of Taper Relief Wide-ranging changes to the capital gains tax (CGT) regime have been announced by the Chancellor, Alistair Darling, in his first Pre-Budget Report. Taper relief, introduced in March 1998 by the then Chancellor, Gordon Brown, will be abolished from 6 April 2008. Viewed by many as being an attempt to tackle criticisms of the private equity industry’s perceived exploitation of the taper relief system, the changes go much further and will have much wider implications for entrepreneurs and business owners. Replacing the complicated rules relating to taper relief will be a simple flat rate of CGT at 18%. This will strip away much of the complexity of the taper relief and indexation system, but there will be some who suffer as a result of this significant change to the CGT rules. At present, shareholders in private companies and companies listed on AIM are able to obtain an effective CGT rate of 10% by taking advantage of taper relief once they have owned the shares for at least two years. In future, that rate will be 18%. Understandably, many entrepreneurs and owner-managers might consider crystallising gains by selling their shares before the implementation of the new rules to take advantage of the effective 10% tax rate. The increase in tax will become a significant consideration for all entrepreneurs, business angels and business owners contemplating the timing of any exit strategies and share sales. Another possible consequence of the new rules is that those who have recently sold their shares and received loan notes as part of the consideration might need to re-consider the timing of redemption of those loan notes to take advantage of the 10% effective tax rate. This would involve redeeming loan notes before the new CGT rules come into force on 6 April 2008. The regulations containing these new rules will not be published until next year and we wait to see the precise implications of the changes with interest. SGH can provide specialist legal advice on exit strategies and share sale transactions. Contact This note is intended to provide general information about recent and anticipated developments. It is not intended to be comprehensive or to provide specific legal advice and is not a substitute for such advice. Professional advice should be obtained in individual situations.
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For further information, please contact: Rishi Malliwal, Partner, on 0207 544 5679 or email 
