THE government will this week announce significant changes to the controversial reforms in capital gains tax (CGT) unveiled in the prebudget report two months ago.

The concessions, to be revealed in a House of Commons announcement by Alistair Darling, the chancellor, follow protests from business and a campaign by the CBI, British Chambers of Commerce, Institute of Directors and Federation of Small Businesses (FSB) to get the reforms reversed. “What we want is something substantial, not just tinkering round that doesn’t effect many people,” said Miles Templeman at the Institute of Directors.

But Darling’s concessions are likely to fall well short of demands from business for the full restoration of the so-called taper relief system and a lower tax rate on business assets.

Treasury officials, while refusing to be drawn on the details of this week’s expected changes, said the broad thrust of the reforms announced in October would remain in place. This would mean the scrapping of taper relief in April and an increase in the lowest CGT rate on business assets from 10% to 18%. At the same time, nonbusiness assets such as second homes will see their lowest CGT rate drop from 24% to 18%.

Instead of root-and-branch changes to his reforms, Darling is expected to announce new reliefs to minimise the tax’s impact. These are set to include a retirement relief, aimed at owner-man-agers selling up to retire. The Treasury has also been examining a reinvestment relief, in which serial entrepreneurs using the proceeds of a business sale to invest in a new enterprise will be cushioned from the tax hike.

“Retirement relief on its own would not be acceptable,” said Ian Peters of the Engineering Employers’ Federation. “If combined with reinvestment relief we would have to see how far it goes. But the fundamental point is that the system should provide an incentive for investment in business assets rather than less risky nonbusiness assets.”

The FSB is consulting Chris Sanger of Ernst & Young, who advised on the introduction of taper relief when he was an adviser to Gordon Brown at the Treasury. It is calling, among other things, for 50% tax relief on business assets up to the value of £750,000, which would limit the tax rate to 9% for smaller firms.

“We’re pleased the chancellor has acknowledged the outrage in the small-business community about the plans to abolish taper relief on CGT,” said John Wright, the FSB’s national chairman. “Our proposals would protect small-business owners who have worked hard over many years to build up a business and want to sell it to pay for their retirement.”

Simon Walker, chief executive of the British Private Equity and Venture Capital Association, has issued a stark warning to the Treasury, claiming that any further changes to taxation or regulation will lead to up to 100 top firms deserting Britain for continental tax havens.

In an interview with The Sunday Times, Walker said the proposed rise in CGT from 10% to 18% had already resulted in approaches from Swiss tax authorities trying to lure away staff and businesses.

Walker said: “Just as Lewis Hamilton made his private arrangements on tax, some cantons are now targeting our firms and directors to move their headquarters from London to Switzerland. With them may go many of the investors they bring to the UK and that’s not a comfortable thought.”

Walker believes one of the biggest threats to the City’s preeminent status in Europe is the proposal to increase CGT.

“We believe these proposals will make the UK only the fourth most competitive environment for private equity in Europe, behind places like Ireland and France,” he said. “There’s no doubt the Treasury’s proposals will weaken the City’s competitive edge. And if there are any further changes to the taxation or regulation of the industry I’m certain many more firms will be tempted away to more tax-friendly nations.”

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