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Businesses reject capital gains change

15/10/2007

The UK's four main business groups are urging the chancellor to suspend plans to reform capital gains tax.

Alistair Darling announced plans to withdraw taper relief for capital gains tax in his pre-Budget speech to parliament last week, with those who hold on to assets for longer currently paying a lower rate of capital gains tax when they sell the investments.

Under the proposed change different rates of relief for different kinds of investment will be replaced by a single flat-rate of 18 per cent from April next year.

Announcing the reform the chancellor told the House of Commons that he planned to make the capital gains tax regime "more straightforward and sustainable", while claiming that the measure would also help ensure that private equity firms paid their fair share of tax.

However the Confederation of British Industry (CBI), British Chambers of Commerce (BCC), Federation of Small Businesses (FSB) and Institute of Directors (IoD) claim the move will discourage venture capitalists from making long-term investments and risk-taking.

In a joint letter to the chancellor the four groups stress that the government's capital gains decision came "as a bolt out of the blue", claiming that the reaction of their members to the proposal has been "universally strong".

The note warns that the impact of the decision will be felt "throughout the economy" and threatens to cause "serious damage" to the UK's entrepreneurial culture.

Business leaders tell Mr Darling: "The net effect will be to set back the growth of the economy over coming years, by discouraging longer-term investment and risk-taking."

They stress that small business owners who have "toiled over years to build up an asset" are now faced with the prospect of either selling up or suffering a "substantial dent" to their investment.

In addition the business organisations insist that the capital gains tax changes could leave the 1.7 million employees in company share schemes facing an 80 per cent rise in their tax bill and act as a "serious disincentive" to the take-up of share options in the future.

Combined with planned rises in the rate of small business corporation tax the change will put the government's pro-enterprise agenda "into reverse gear", they stress.

"On behalf of our combined memberships we urge you to pause, suspend your decision and enter into urgent and detailed discussion with the key business organisations to resolve this situation," the letter warns.