Alistair Darling s first pre-budget report had a sting in the tail for many small businesses. With the removal of taper relief, entrepreneurs may now be reluctant to sink cash into smaller enterprises. Measures proposed in the report were intended to clip

Alistair Darling's first pre-budget report had a sting in the tail for many small businesses.

With the removal of taper relief, entrepreneurs may now be reluctant to sink cash into smaller enterprises.

Measures proposed in the report were intended to clip the wings of private-equity investors, ensuring they pay what the Chancellor considers a fair portion of tax on their investment returns.

However, removal of taper relief will have a broader impact with businesses facing a potential tax increase of up to eight per cent on any gain.

Under existing rules, the tax charge for capital gains for individuals ranges from 10 to 40 per cent, depending on the asset involved and the amount of time it had been owned before it was sold. This framework will be replaced on April 6 next year with a single tax charge of 18 per cent.

There is clear danger that investors will see the new measure as a disincentive to buy or sell shares in small unlisted businesses or companies listed on the Aim market. It will also have an impact on employee share schemes, increasing the employee's tax bill on disposal of shares (although most employees' gains will fall below the annual exemption allowance - currently £9,200 - which remains in place).

Business leaders and advisers have expressed their disappointment at the change. Matt Hardman, Forum for Private Business's campaigns manager, said: "This is no reward for investing money and effort into a company. It may mean less entrepreneurs willing to take the risk for a smaller return."

Investors who have accumulated a minimum of two years' business asset taper relief and who are looking to dispose of their holdings within the next year will need to time that disposal carefully. Before April 6 2008, the disposal will be taxed at 10 per cent. After that, the rate jumps to 18 per cent.

If you would like to discuss the purchase or sale of assets and their tax implications, contact Helen Garrett on 01945 582547 or e-mail her at helen.garrett@wheelersuk.com.