The Chancellor Gordon Brown is expected to change the tax rules for venture capitalists buying brokers in this year's Budget.
According to Mazars partner and tax expert Andrew Green the Treasury may change the rules on business asset taper relief. At present, if a venture capitalist or individual invests in a brokerage and relinquishes its interest within two years, it will pay tax on chargeable gains on assets of 10%.
“The Treasury does not like individuals taking short-term interests in these companies and then selling out.
“As such the rate of tax could rise to between 12%-15%. Will this stop the acquisition drive in regional brokers? I doubt it,” he added.
Green said the Treasury could also withdraw disclaimers involving tax losses on insurance companies' acquisitions. The Inland Revenue began a review on disclaimers in February this year and does not like the fact that disclaimers are used to help the sale of tax loss companies. Disclaimers allow an insurance company to offset its tax loss on its reserving on being sold.
Green said: “The disclaimer was introduced as a mechanism to get the tax loss in the right year at the right cost.
“We have lobbied hard to stop the Treasury killing off this tax advantage because it will discourage companies from investing in the London Market and drive them to look at Dublin or other domiciles which have more flexible and cheaper tax regime.”
Green said that as this was Brown's “last Budget before he takes the PM role” it would be “dull”.
“Though for the past two years there has been talk of a rise in insurance premium tax (IPT), nothing has happened. To the customer it is a hidden cost and as such they are not interested in it,” he added.
He also believed that the decision on the VAT ruling on outsourcing would “wait until next year”.
Meanwhile, Mazars is advising an number of Lloyd's member agents on converting to limited liability partnership (LLP) status.
Green said: “There are many tax benefits under the LLP rules and Names are interested in taking up the status. This should encourage new capital from corporates and offers a good investment structure.”
