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PBR: Alistair to be the investment industry’s darling with a huge and unintended tax break?

As the dust is settling, it would appear that Alistair Darling has fallen prey to the law of unintended consequences. The PBR announced some of the most sweeping changes to the capital taxes system in the last 40 years, including the introduction of a flat CGT rate of 18% for individuals and trustees.

Mazars Partner Paul Willans commented, "Of course, we have yet to see the full details, and that is where the devil is, but if there are no time eligibility requirements, then Mr Darling has given the investment industry the green light to move money from cash deposits paying up to 40% income tax to capital gains-generating investments that could generate tax-free returns of up to £9,200 a year from April 2008 and pay only 18% tax on the remainder.

This will be manna from heaven for the UK’s investment industry, who will seize this, perhaps unintended loophole, and will be creating low-risk investments that will be subject to CGT rather than income tax. Of course, capital based investments may not be suitable for widows and orphans, but the potential for halving the tax burden will make an element of volatility acceptable."

In summary, unless the Treasury changes its initial proposal and guidance, canny investors need never pay more than 18% tax on their investment portfolios. Is this what Alistair intended?

For more information, please contact:

Paul Willans, Mazars

Tel: 020 7220 3325

Mobile: 07966 802 875

Email: paul.willans@mazars.co.uk

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