Tax experts warn: "Don't rush to sell your pub

A leading tax expert has warned pub owners not to rush into selling their businesses before the start of the new tax year, after the government said it would increase the effective rate of tax on capital gains from April 5, 2008.

Some independent pub owners have indicated that they would rather sell up before next April in order to avoid paying capital gains tax (CGT) at the proposed higher rate of 18 per cent.

CGT is currently applied at 10 per cent for businesses that have been held for more than two years. The rules affect individuals, not corporate groups.

However, experts have indicated that a rush to sell could prove to be a false economy.

Stephen Herring, senior tax partner at accounting firm BDO Stoy Hayward, said: "If a business owner is looking at a gain of £200,000 through selling his or her pub, an increase in capital gains tax to 18 per cent would result in an additional £16,000 liability.

"While that might seem a lot, unless you are going to make a profit on selling your business of £500,000 or more, rushing to sell now could ultimately lose you money."

Negotiations could be protracted and potential buyers would know an owner was keen to sell in order to avoid the new tax, so would drive a harder bargain, he added.

Herring was joined by other tax professionals in calling on the government to offer a tax amnesty on the first tranche of any capital gain, or alternatively scaling the amount of tax levied over the whole amount.

Peter Harrup, a tax partner at accountants PKF, said that he would like Chancellor of the Exchequer Alistair Darling to allow gains of up to £100,000 to be deemed tax-free when the government tables its draft legislation later this month.

Darling hinted at the CBI's conference earlier this week that some concessions might be offered, but he would not confirm if this would prove ultimately to be government policy.

Richard Farnsworth, a tax director with PricewaterhouseCoopers, acknowledged the 18 per cent rate might hit those who had invested in a business for a number of years, "but it will not present a barrier to newcomers to the industry".

Individuals who previously turned a business round and sold it inside of two years would have paid 20 per cent, he said, adding: "There will always be winners and losers in a tax regime change."