The Federation of Small Businesses has warned entrepreneurs that they will be hit by changes to capital gains tax when they retire as well as during the usual course of selling a business.
Measures announced by chancellor Alistair Darling in the pre-Budget report will now affect entrepreneurs who were relying on selling their business to fund their retirement, often in place of a pension.
The changes – which have been fiercely opposed by business groups including the British Chambers of Commerce and CBI – will see the various rates for capital gains tax scrapped in favour of a flat rate.
This means small business owners selling up will have to pay 18% rather than the previous rate of 10%, which was introduced by Labour government in the 1990s in a bid to encourage start-ups.
“Many entrepreneurs now face a more uncertain retirement,” explained FSB national chairman John Wright. “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,” he added. “A secure retirement for entrepreneurs is now looking less likely thanks to the government’s tinkering with capital gains tax taper relief.”
The organisation is also warning that the measures will hit anyone planning to sell a business before the new rate is introduced in April 2008, as prospective buyers will expect a knockdown price knowing that owners have to sell.