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U-turn on election pledge

Alarm over plan to axe tax relief for entrepreneurs

Rishi Sunak

Rishi Sunak: seeking funds

New chancellor Rishi Sunak has prompted a backlash from business groups over his plan to scrap a £3 billion tax relief for entrepreneurs.

Mr Sunak is expected to confirm ending the tax break which halves the capital gains tax paid when people sell their businesses.

Under current rules, sellers pay only 10% on lifetime gains of up to £10m, compared with the 20% capital gains tax paid by higher-rate taxpayers.

It was introduced by Gordon Brown’s Labour government in 2008 to encourage business creation and was expanded by the Conservative government after 2010.

Mr Sunak is targeting the relief as he looks to divert funds towards the government’s big ticket pledges on infrastructure and the NHS.

However, the Federation of Small Businesses say that scrapping the relief rather than reviewing it will break a Conservative Party election pledge.

Everyday entrepreneurs who are about to retire will be left permanently poorer by this change

– Mike Cherry, FSB

FSB chairman Mike Cherry said: “Scrapping entrepreneurs’ relief would make a mockery of the idea that it’s ever sensible to build up a business rather than invest in property, land or secure a gold-plated pension.

“Everyday entrepreneurs throughout the country who are about to retire will be left permanently poorer by this change.”

He only about 10% of people who claim this relief are selling businesses worth more than £1m.

“The vast majority of those who benefit from this incentive – 38,000 each year – are everyday entrepreneurs, those who see their business as their retirement plan, and who would lose an average of £15,000 each as a result of this change. This move would mark an incredibly damaging way of telling anyone thinking of investing in their business not to bother.

“The Conservative Party made a clear commitment to reform – not scrap – this relief in its general election manifesto. They should keep to their word.

“Sensible reform would involve refocusing entrepreneurs’ relief so that it only applies to the first £1m of business sales. Doing so would protect the vast majority of those who benefit from this incentive each year.”

However, the Institute for Fiscal Studies has argued that the relief is not well targeted and that it caused distortions in the tax system.

The IFS said last week that scrapping it would make the tax system “more equitable and more efficient”.

Paul Johnson, director at the IFS, said: “There are plenty of tax rises which would both raise revenue from better off individuals and improve the coherence of the tax system.

“Top of the list should be the abolition of the misleadingly named entrepreneurs’ relief.”

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