Not surprisingly, a detailed review of the Chancellor’s proposals shows the relief to be more complicated and less attractive than it might initially appear:

1. The relief applies only on the first £1million of lifetime gains, which is markedly less generous than the taper relief regime it replaces and is unlikely to be of great benefit to the serial entrepreneur. 
2. At the other end of the scale, the requirement for an employee to hold at least 5% of the company’s shares means that many lower paid staff at companies such as Tesco (so often referred to as an example of the small investor benefitting from taper relief) will be excluded from the Chancellor’s new scheme. 
3. The shares, or interest in the business, must have been owned for at least one year, which does little to encourage long term investment. 
4. There is still no allowance made for inflation on those assets owned before April 1998, the impact of which it is easy to underestimate. A husband and wife farming partnership, whose farm was worth £1,000,000 in 1982, could face a tax bill of £38,000 if they sold their farm for £2.5million before 6 April 2008. Waiting – or being forced to wait – until after the end of this tax year would increase the tax liability to £148,000. The fact that it would have been nearly £270,000 but for the new relief is unlikely to be of great comfort to a couple who have seen their payment to HM Revenue & Customs increase by nearly 300%.

In many cases, the changes will have removed the urgency of business owners to try and sell before 6 April 2008, which will in turn potentially prevent a false market. But for others – especially those who have owned their business for many years - it may still be worthwhile looking at ways to benefit from the more generous regime in force until then.

If you think you may fall into the latter category and would like to discuss how the new rules might affect you, please contact Cathy Corns or me.