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At the Chancellor’s invitation, Richard Lambert, Director-General of the CBI, David Frost, Director General of the British Chambers of Commerce, Miles Templeman, Director General of the Institute of Directors (IOD), and John Wright, National Chairman of the Federation of Small Businesses (FSB), will visit the Treasury.

They will discuss their concerns over the abolition of taper relief on capital gains tax, which they set out in an open letter last week.

Mr Lambert said: “We look forward to a constructive meeting with the Chancellor to discuss his changes to capital gains tax which have caused real concern amongst the business community.”

Earlier, the CBI sent an open letter to the Chancellor in which it warned that the capital gains tax proposal "undermines the 10 year effort by this government to promote enterprise and risk-taking within the UK."

Under the Chancellor's proposals, the so-called taper relief, meaning that people who hold on to shares for longer pay a lower rate of capital gains tax than those who are chasing quick profits, would be replaced with a flat rate of 18 per cent capital gains tax on all capital gains. The CBI said that abolition of taper relief provides for some simplification of the capital gains tax regime, but at the cost of hitting a number of groups who are taking significant risks in investing in and building the businesses that generate employment and wealth.

"In addition to those small business owners who have expended a good deal of “sweat equity” - foregoing income and putting their homes on the line in order to build up their business - these changes will hit other investors, from external venture capital to employees who take a stake in their company’s future," according to the CBI.

Lower return on investment

The FSB warned that the proposed change to capital gains tax (CGT) taper relief, announced in the recent pre-Budget Report (PBR), will hit entrepreneurs in their retirement as well as in the normal course of business sales.

The Federation said that many business owners, who started from scratch and worked long hours at considerable personal financial risk, were depending on the sale of their business to fund their retirement. With the increase in CGT from 10 per cent to 18 per cent these business owners will see a lower return on their investment. This comes on top of the removal of tax relief on share dividends in 1997 that did a great deal of harm to pension provision in the UK.

The change will not merely hit business people from April next year when the tax change takes effect. Those seeking to sell their business before April 2008 will find that potential buyers will seek a discount on the sale knowing that the alternative to selling immediately is a larger tax bill later on.

John Wright, FSB National Chairman, said that many entrepreneurs now face a more uncertain retirement. 

"Their contribution to the wealth of the nation – their hard work, their taxes, the jobs they offer people and the facilities they provided for their local communities are all being taken for granted. We are not talking about millionaires or fat cats, but entrepreneurs who have taken a big risk and deserve their modest rewards on the sale of their business.  A secure retirement for entrepreneurs is now looking less likely thanks to the Government’s tinkering with capital gains tax taper relief."

“Following the removal of tax relief on share dividend in 1997 this move is yet another attack on people being able to make secure provision for their old age.  The Chancellor should suspend this proposal until full consultation with business groups has been held to radically alter and improve upon this disastrous proposal.”

Related articles

• Business groups unite against tax plans
• CBI slams capital gains tax plans
  

Related links

• CBI
• Institute of Directors
• British Chambers of Commerce
• Federation of Small Businesses