Treasury 'set for tax U-turn'
Chancellor Alistair Darling announced plans to scrap taper relief this month
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Wednesday, 31, Oct 2007 12:20
The Treasury is considering a partial U-turn over its controversial plans to reform capital gains tax, according to press reports.
Leading business organisations recently met with chancellor Alistair Darling to discuss their concerns over his intention to scrap taper relief for capital gains tax - a move they have claimed would penalise small-business owners nearing retirement.
According to reports the Treasury is now planning to soften the blow by cutting the amount of capital gains tax that the owners of small firms must pay when they sell their businesses at the end of their working lives.
Under the original capital-gains-tax plans, announced in the chancellor's pre-Budget speech to parliament earlier this month, different rates of relief for different kinds of investment would be replaced by a single flat-rate of 18 per cent from April next year.
But the Federation of Small Businesses (FSB) complained that many of its members relied upon funds gained from the sale of their business to finance their retirement and warned that under the proposed changes they would see a lower return on their investments.
In response to the concerns Mr Darling is reportedly planning to reintroduce a system of "retirement relief" for small-business owners.
The Times newspaper claims that under such a move those eligible for the relief would be exempt from paying capital gains tax on some of the proceeds from a sale of their business, up to a value of £100,000.
The Treasury has not directly commented on claims that it is planning to restore retirement relief, which was abolished in 1998 when the standard 40 per cent capital-gains-tax rate was scrapped.
But referring to the wider reform of capital gains tax a spokesperson for the department said it was "working with representatives of the business community on the details of the reform and on measures to improve the business environment, and to continue to encourage entrepreneurship".
FSB spokesman Stephen Alambritis said the reintroduction of retirement relief would be welcomed by his organisation.
"We are a bit happier if this is what it going to happen," he told BBC Radio Five Live.
Referring to the confirmed decision to scrap taper relief, he added: "We impressed upon the chancellor when we met him last week that the unintended consequences was that those loyal small-firm owners who have been working for 20 or 30 years building up the firm and were coming up to retirement were going to be hit with the increase in capital gains tax."
But shadow chancellor George Osborne accused the Treasury of creating confusion over its tax plans.
"No one knows what exactly is going on," he said.