Treasury backs down over CGT

Channel breathes sigh of relief as Chancellor unveils capital gains tax concession for entrepreneurs

UK entrepreneurs are celebrating after the chancellor today bowed to business opposition to its proposed capital gains tax (CGT) reforms.

The Treasury had planned to introduce a flat 18 per cent CGT rate on 6 April, which channel critics claimed could stunt entrepreneurial activity (CRN, 26 October). In the current tapered system, sellers of business assets pay just 10 per cent CGT if they have held them for two years or longer.

However, in the face of mounting pressure from business groups, Alistair Darling today said he would introduce a CGT “entrepreneurs’ relief”.

The concession, which Darling said would benefit 80,000 people, will allow small business owners to pay just 10 per cent CGT on lifetime gains of up to £1m.

Darling added that the change would cost the government £200m a year.

The Federation of Small Businesses (FSB) welcomed the government’s last-minute U-turn, but warned that small businesses’ trust in the government had been dented by its handling of the process.

John Wright, FSB national chairman, said: “The chancellor said specifically today that he wanted to help small businesses facing big tax rises from April and that is very good news indeed.

“The entrepreneurs’ relief he announced today is close to the proposals we put forward at the end of last year. They will go some way to protecting entrepreneurship in the UK as well as benefiting small business owners planning to pay for their retirement with the sale of their businesses.

“We welcome these plans, but the way in which the whole issue has been handled has seriously eroded small businesses’ trust in the Government. There has been huge uncertainty about what small businesses’ tax liabilities would be from April 2008 and this has made planning for the future very difficult. Even now small business owners have very little time to prepare before these new changes come in.”