Abuse fears over Brown's tax break

HUNDREDS of tax inspectors are being given crash courses in how to stop Gordon Brown's generous new capital gains tax regime being abused.

The tax breaks, announced in last week's pre-Budget report, may lead to accountants dressing up clients' income as a capital gain, slashing the tax from 40% to 10%.

CGT raises £3 billion a year, but income tax brings in £100 billion - a total that could be severely dented by widespread abuse.

'The Revenue is worried,' said a source. 'It is going to put a lot more emphasis on CGT'.

Wealthy people from artists and entertainers to property developers stand to benefit enormously from carefully crafted schemes designed to take advantage of the CGT regime.

Creative people could take payments for their work in the form of paper securities such as share certificates or bonds, while complicated deals in which properties generate apparently low rents but high capital gains would give owners big savings on tax bills.

'For an accountant, it is fairly easy to structure a trading venture or any stream of income as a capital gain,' said the source.

CGT was introduced in 1965. Until 1988, it was charged at 30%, and from then to 1998 it was added to a taxpayers' income tax bills and charged at their top rate.

Brown then cut CGT to 10% for gains on assets held for 10 years, reducing this to four years in March 2000. Now it is being cut to just two years. Announcing the changes, he said they were to 'encourage investment and to promote enterprise'.