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Retail deals likely to soar ahead of 2008 tax rejig

A hike in capital gains tax is likely to boost the number of retail deals in the first quarter of 2008, creating a buyers' market in terms of valuations put on fashion retailers and brands.
Chancellor Alistair Darling announced last autumn that he would scrap the old capital gains tax regime in April 2008. Under the old system, introduced in 1988, an individual who had owned a business or held a stake for more than two years would only pay 10% tax on the difference between the acquisition price and the sale price when they came to dispose of it.

But from April 6 this year, a flat rate of 18% will be introduced. Private equity-owned businesses and owner managers, including independent fashion chains looking to sell, are likely to be affected by the new rules.

In December Linda Bennett, founder of womenswear and footwear chain LK Bennett, blamed the new tax rate for her decision to sell the business now.

Chris Sanger, head of tax policy for accountancy firm Ernst & Young, said: "Individuals in private equity firms often hold their own stakes in the businesses that their funds have invested in, so the new rules have a direct effect on them."

He said the changes created a "very real incentive" for owners to get deals done by April 6. He added: "If the Chancellor fails to introduce any new tax concession, the change is likely to create a buyers' market on deals looking to complete in the first quarter of the year."

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