The government has announced changes to capital gains tax (CGT), confirming that it will set a single 18% rate and cease taper relief from 1 April.
The government has announced changes to capital gains tax (CGT), confirming that it will set a single 18% rate and cease taper relief from 1 April.
But Chancellor Alistair Darling also said there would be a 10% rate on gains of up to £1m, to help entrepreneurs.
But Chancellor Alistair Darling also said there would be a 10% rate on gains of up to £1m, to help entrepreneurs.
Plans for a single tax rate sparked strong criticism from industry groups and small firms who said it would hamper new businesses.
Industry groups and small firms have broadly welcomed the lower rate, after fears that the flat-rate plan would act as a brake on new businesses.
The chancellor first announced changes to CGT in October's pre-Budget report.
The chancellor first announced changes to CGT in October's pre-Budget report.
"I am today announcing the introduction of a new capital gains tax entrepreneurs' relief," said Mr Darling, as he announced the statement in Parliament.
"I am today announcing the introduction of a new capital gains tax entrepreneurs' relief," said Mr Darling, as he announced the statement in Parliament.
There had been speculation that the government would halve the proposed rate to 9% for gains of up to £750,000.
There had been speculation that the government would halve the proposed rate to 9% for gains of up to £750,000 - a plan that had been put forward by the Federation of Small Businesses (FSB).
Mr Darling said about 80,000 people would able to benefit from the relief, which he valued at £200m annually.
Mr Darling said about 80,000 people would able to benefit from the relief, which he valued at £200m annually.
Small business anger
He added that gains made on different occasions would also qualify for the 10% rate up to a "cumulative lifetime total of £1m of gains".
'Mixed message'
The original plans to raise the rate had met with fierce criticism from the Institute of Directors, the CBI and the Federation of Small Businesses.
The original plans to raise the rate had met with fierce criticism from the Institute of Directors, the CBI and the Federation of Small Businesses.
CAPITAL GAINS TAX Tax rate of 18% on sales of assets above £1mTax rate of 10% on sales of assets up to £1mAround 80,000 people expected to qualify for 10% rate reliefLower rate estimated to save firms £200m a year
But after the news, John Wright, FSB's 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."
Small business owners, especially those who had hoped to sell their firms and use the proceeds in retirement, had been especially annoyed.
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 John Wright, national chairman, FSB
Before Mr Darling's announcement, the Federation of Small Businesses told the BBC that the "whole episode has been a mess".
However, Mr Wright added that the way in which the issue had been handled had "seriously eroded small businesses' trust in the government".
But speaking on Thursday, Mr Darling said the new measures would benefit the owners of small businesses when they wanted to sell their firms.
"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," he said.
Other organisations, though welcoming the "entrepreneurs' relief" rate, also voiced concerns about the revised CGT and the manner in which it had been changed.
"Today's announcement sends mixed messages about how favourable the UK tax regime is for investment," said Martin Temple, the chairman of EEF, the industry body for engineering and manufacturing workers.
CAPITAL GAINS TAX Tax rate of 18% on sales of assets above £1mTax rate of 10% on sales of assets up to £1mAbout 80,000 people expected to qualify for 10% rate reliefLower rate estimated to save firms £200m a year
One of the main concerns had been for small business owners who hoped to sell their firms and use the proceeds in retirement.
Speaking on Thursday, Mr Darling said the new measures would benefit the owners of small businesses when they wanted to sell their firms.
But Penny Bates, an accountant with Menzies, said: "The chancellor's announcement has failed to address the main issue."
While it would help those who build up a firm over their lifetime, it would not help those who repeatedly start firms, so-called "serial entrepreneurs", she added.
Mr Darling came under fire from Shadow Chancellor George Osborne after the amendments to CGT were announced.
Mr Darling came under fire from Shadow Chancellor George Osborne after the amendments to CGT were announced.
"In the short, inglorious time you've been in office, you've only had one original idea on tax and that was a big increase in capital gains, thinly disguised as a simplification," Mr Osborne said.
"In the short, inglorious time you've been in office, you've only had one original idea on tax and that was a big increase in capital gains, thinly disguised as a simplification," Mr Osborne said.
Uncertainty
Private equity
Taper relief currently allows some higher rate taxpayers to pay as little as 10% CGT on profits from the sale of assets in any unlisted company or publicly-listed firm they work for, as long as they have held them for two years.
Taper relief currently allows some higher rate taxpayers to pay as little as 10% CGT on profits from the sale of assets in any unlisted company or publicly-listed firm they work for, as long as they have held them for two years.
It can also reduce the CGT liability for some basic rate taxpayers to 5%.
It can also reduce the CGT liability for some basic rate taxpayers to 5%.
Firms had criticised Mr Darling for failing to reach a decision on CGT earlier, saying this had added to uncertainty and made financial planning hard.
The changes would mean private equity bosses, some of whom have made fortunes from buying and selling companies, would no longer be able to pay just 10% on their profits.
The changes would mean private equity bosses, some of whom have made fortunes from buying and selling companies, would no longer be able to pay just 10% on their profits.
But critics said it also meant budding entrepreneurs could be put off.
But critics said it also meant budding entrepreneurs could be put off.
Are you a small business owner? What do you think of these changes? Send us your comments using the form below:
Are you a small business owner? What do you think of these changes? Send us your comments using the form below:
