Entrepreneurs: Business owners benefit as Darling extends 10% CGT limit

Efforts aimed at helping people start new businesses were welcomed yesterday after the threshold on the 10 per cent rate of capital gains tax (CGT) was doubled to £2m, while fears that the Chancellor would increase the overall CGT rate were assuaged.

Entrepreneurs who sell assets will now pay 10 per cent on the first £2m worth of sales. Previously, the 10 per cent level was capped at £1m, while the upper rate of CGT will stay at 18 per cent.

"The increase in the entrepreneur's relief threshold is something that we have been supporting for a long time," said Andrew Hubbard, the tax-policy director at RSM Tenon. "In the current environment not many people are selling their business, but it must be right that when the economy picks up that entrepreneurs are not faced with a huge tax bill on the sale of a business which they may have spent a lifetime building."

Reports have said that some business owners have sold their companies in recent weeks, in anticipation of an increase in the 18 per cent rate of CGT. "The increase in entrepreneurs relief from £1m to £2m will benefit business owners who sell after 6 April," said Simon De Young, a tax director at PwC. "But this won't benefit anyone who sold their business before the Budget. They will now regret not waiting."

Those running small businesses also praised the CGT threshold increase. Will King, the founder and chief executive of King of Shaves, said the move would encourage those considering starting a business. "Entrepreneurs are going to be power-houses of growth in this country, and the doubling the CGT threshold is very welcome. But we also need to get the state-backed banks to start lending again. The RBS should be renamed as RB Yes." The Chancellor said RBS and Lloyds would be required to lend £94bn next year.

Somef analysts cast some doubt on the proposals, saying that there are questions about how the Government would implement the policies.

"Time will tell whether SMEs will truly benefit," said Debbie Griffiths, a tax partner at Deloitte. "For example, there are questions around how banks will be 'forced' to lend and how effective the newly formed credit complaints committee is likely to be."