Multi-million tax breaks persuaded Cazenove to float

Some of the City's top stockbrokers are being given a windfall of up to £300m as a result of changes made in last March's Budget by the Chancellor.

Some of the City's top stockbrokers are being given a windfall of up to £300m as a result of changes made in last March's Budget by the Chancellor.

David Mayhew, chairman of Cazenove & Co, the Queen's stockbrokers, told the Independent on Sunday the recent capital gains tax changes were a deciding factor in the broker's surprise decision to give up 177 years of partnership and become a public company. He said the broker wanted to "acquire the best talent" and to do this it needed to give employees equity in the business.

In March, Gordon Brown cut the amount of time investors have to hold shares to qualify for "taper relief" from capital gains tax. Investors' capital gains tax liability will fall from 40 per cent to 10 per cent after four years.

The tax changes also make it more attractive to give the broker's partners a chunk of a public company. Currently there are 80 partners at Cazenove and 42 staff are being promoted to partner in the next few weeks.

Cazenove aims to sell 10 per cent of its shares to outside investors before the float in 2002 and hold 20 per cent more for other staff. The City is expecting a float price of about £1.5bn, which would leave just over £1bn for the partners, or an average of £8.5m each.

Under the rules the Chancellor brought in in the last Budget, the clock starts ticking next year and partners can cash in, paying only 10 per cent tax, in 2005. This concession is worth up to £3m a partner, or over £300m in total. Other City firms are looking at using the tax break - which was supposed to be an incentive to invest in industry and technology companies - as a way of cutting the tax bill on billions paid in bonuses every year in the City. The decision to float Cazenove was announced last week. But the Independent on Sunday has learnt that the move only came after Cazenove explored the possibility of merging with Schroders the merchant bank which was sold to Citigroup earlier this year.

Indeed, Cazenove has flirted with City banks for 17 years without coming to a deal. The closest calls were a potential deal with SG Warburg in 1983, which ended when Warburg chose to take over rival Rowe & Pitman instead, and negotiations with Barings in 1994, before Nick Leeson's rogue trading brought down the merchant bank.