Darling climbs down over abolition of CGT relief

24 01 2008 United Kingdom

The Chancellor of the Exchequer, Alistair Darling, has given way on the tax proposals he announced in October last year.

Three months after announcing scrapping the taper relief on Capital Gains Tax, Alistair Darling has announced a new ‘entrepreneurs relief’ to help small businesses.

Last October in his first Pre-Budget Report, Mr Darling set out his plans to increase CGT on the sale of businesses from 10 to 18 per cent under the guise of ‘simplifying tax’. This immediately caused widespread anger among small businesses, British Chambers of Commerce, the CBI and Federation of Small Businesses.

The Chancellor said today that he had listened to the concerns raised and wanted to do more to support small businesses. In a House of Commons statement he has announced that a new capital gains tax entrepreneurs relief will be a ‘significant help to small businesses’.

As a result of this, he said, entrepreneurs and business investors will keep 90 per cent of the first £1 million of gains that they make. The Treasury estimates that about 80,000 business owners and investors will benefit from the relief in the next tax year.

The proposed flat rate of capital gains tax at 18 per cent announced last October would have brought in a tax take of £900 million for the Treasury. Today’s announcement leaves Mr Darling £200 million out of pocket.

The Chancellor’s change of mind will benefit people who own smaller companies, particularly those who plan to retire soon. They had been threatened with having to sell their businesses by the end of March to avoid paying a higher rate of tax.

These changes follow closely the proposals put forward by the Federation of Small Businesses (FSB) to Treasury ministers and officials in December 2007.

The FSB is Britain's biggest business organisation with over 210,000 members. John Wright, National Chairman, said, “That is very good news indeed.

“But the way in which the whole issue has been handled has seriously eroded small businesses’ trust in the Government,” he said. “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.”

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