Whilst in the media, the broadsheet headlines have been dominated with the increase in the IHT threshold for married couples, and the tabloid headlines with accusations of Darling stealing Osborne’s thunder, it has been relatively easy to overlook the proposed changes to Capital Gains Tax (CGT).

A complete reform of CGT by abolishing taper relief and indexation and introducing a single rate of 18 per cent from 2008/09.

No more 40% CGT rates? No more 20% CGT rates?? The changes seem generous at first glance, but is there more to it?

Yes is the answer! Particularly for owners of small businesses where the effects of the withdrawal of indexation and business asset taper relief could be enormous.

Take, for example Mr X, a sole trader who sells his business thereby crystallising a gain of £100,000. Providing he has owned the business for more than 24 months the sale will currently attract business asset taper relief at 75%, leaving £25,000 chargeable to CGT. Should Mr X be a higher rate tax payer the effective rate on the gain is therefore 10% (CGT at 40% of £25,000 = £10,000 from the overall £100,000 gain). Of course should Mr X remain a basic rate taxpayer the effective rate of CGT is 5%.

When we take into account the fact that any assets owned pre April 1998 currently attract indexation allowance, which effectively increases the cost in line with indexation and takes the inflatory element out of a gain, the rates mentioned above can be pushed lower still.

However as from April 2008 taper relief and indexation allowance are to be withdrawn and the CGT due on Mr X’s gain will be a straight 18% of £100,000. Almost double for higher rate taxpayers and more than treble for basic rate taxpayers!

Whether it was Mr Darling’s intention to attack small businesses or not, it is clear that it is the entrepreneur and business community that are left to pick up the bill from this pre budget statement.