Government set to scrap taper relief despite business pleas

The Government is set to reveal its plans for taper relief and capital gains tax later today. The long-awaited announcement has been delayed several times as vociferous lobbying by business groups has forced the Government to re-think the original proposals announced by the Chancellor in his 2007 Pre-Budget report.

Only yesterday, Treasury officials met with the Institute of Directors (IoD) to discuss the plans for taper relief. Following the meeting Miles Templeman, Director General of the IoD said, “It is clear that the Government is not going to change the core of its proposals to modify capital gains tax. We are going to see a single rate, with no taper relief. We are deeply disappointed, but not surprised. The Government’s stance implies that there will still be a substantial tax increase, which is bound to damage business.

“The business community will be very angry if there is no significant new development after the Government has taken so long to think about what to do. The Government says it is going to address the impact on entrepreneurs, but we do not yet have any indication of what modification, or new relief, might be introduced to mitigate the extra tax burden on them.

The Chancellor first revealed the Government's intention to abolish taper relief in the 2007 Pre-Budget Report. His announcement brought widespread condemnation for being 'anti-enterprise' and for being poorly thought out. Many believe that the decision was hastily taken in an attempt to increase the tax paid by a handful of private equity bosses. But the Government failed to realise the profoundly negative effect the move would have on hundreds of thousands of small business owners.

Removing taper relief will hit many with an 80% Capital Gains Tax hike

If taper relief is scrapped, and the proposed flat rate of Capital Gains Tax is introduced, business owners that have spent more than 2 years building a business will have to pay CGT at 18% instead of 10% when they sell their business - a massive 80% increase.

Speaking on the lack of firm plans 3 months on from the Chancellor's original announcement, Templeman added, “The delay is also a serious matter in itself. People need time to plan their affairs when whole businesses are involved. There is an increasingly strong case for postponing the abolition of taper relief. Changes to CGT do not need to take effect from the start of a tax year."

During the past 3 months there have been several rumours and leaks from the Treasury. At one stage it seemed that the Government was thinking of re-introducing some form of 'retirement relief' for business owners selling their company and retiring, but this idea was quickly condemned by business groups for being completely inadequate.

The Government keeps on telling us that it is 'pro-enterprise'. We will find out later today whether it means what it says, or whether they are hollow words.