Small businesses and tax experts have given a lukewarm welcome to the Chancellor’s U-turn on his shake-up of capital gains tax (CGT).

They are pleased that Alistair Darling is introducing a new lower rate of 10 per cent – rather than the proposed flat rate of 18 per cent – on gains made by entrepreneurs. But they are angry that the lower rate, known as entrepreneurial relief, will be restricted to the first £1 million of capital gains.

They point out that under the old CGT regime, which Mr Darling is scrapping, all gains on business assets, including companies built up by entrepreneurs, were taxed at 10 per cent once they had been held for two years. And they are concerned that the latest announcement, coming less than three months before April 6, gives businesses little time to arrange their tax affairs before the new regime comes in.

Paul Aplin, chairman of the tax faculty of the Institute of Chartered Accountants in England and Wales (ICAEW), says that the clear winners from Mr Darling’s announcement are small businesses. “Under the original proposals for an 18 per cent flat rate, someone who sells a business he has built from nothing for £1 million would have paid £180,000 in CGT,” Mr Aplin says. “But after Thursday’s announcement he will pay 10 per cent on his £1 million gain, leaving him with a bill of only £100,000.”

Mr Aplin adds that others who will benefit from the Chancellor’s latest proposals, such as farmers, will not exactly be uncorking the champagne – they stand to lose a great deal from the abolition of indexation relief and taper relief, which is still going ahead.

“A farmer who bought land for £500,000 in 1982 and now wants to sell it for £1 million would, under Mr Darling’s October proposals, have paid 18 per cent on £500,000, resulting in a bill of £90,000,” Mr Aplin says. “Thursday’s changes mean that he will now pay 10 per cent tax on that gain, reducing his bill to £50,000. But under the old regime, which Mr Darling is scrapping, indexation relief would have pretty much wiped out the entire gain, leaving him with little or no CGT to pay.”

Mike Warburton, senior tax partner at Grant Thornton, the accountant, says: “The introduction of a 10 per cent rate on the first £1 million of gains, which means that not everyone will have to pay the proposed 18 per cent flat rate, is welcome as far as it goes. But it is not as generous as the old regime and there are much tougher restrictions on who can benefit from this entrepreneurial relief.

“You have to be a sole trader, a member of a partnership, or a company director or employee who holds at least 5 per cent of the company’s shares. This rules out most people who participate in save-as-you-earn company share schemes, so a check-out operator at Sainsbury’s would not qualify for the 10 per cent rate.”

There is also confusion over whether the £1 million figure on which a reduced rate will apply will be a lifetime exemption, which would mean that people would have to keep records indefinitely.

George Bull, of Baker Tilly, the accountant, says: “The wording suggests that lifetime means lifetime, which would be an administrative nightmare.”

Most private equity funds are unlikely to meet the requirements for the new entrepreneurs’ relief. However, in some cases where investments are made in small or medium-sized companies, some members of private equity firms may be allocated individual holdings of more than 5 per cent and could qualify for the relief. Mr Warburton says: “It will all depend on the small print.”

Times Recommends

• How to sell your home in a downturn
• How to boost your spending power
• Unemployment benefits explained