Business counts cost as Darling hijacks Tory ideas

Private equity groups and business angels were considering the impact of sweeping changes to capital gains tax, while other businesses remained in the dark following Alistair Darling's first and hugely political pre-Budget report.

The most far-reaching change in the report was the u-turn on capital gains tax, in which prime minister Gordon Brown's taper relief system was ditched in favour of a flat 18% rate.

Advisers said the move, clearly forced on the government by the need to tackle the low rate of tax paid by private equity bosses, would be low enough to ensure that the industry might not move abroad.

'It is notable that in the Treasury select committee hearings earlier this year, evidence was heard that the private equity industry could live with a tax rate of 15-20%,' said Chris Sanger of Ernst & Young.

Deloitte head of tax policy Bill Dodwell said buy-out houses and individuals could actually benefit from the change, as there was no longer a holding period required for assets to attract taper relief.

But there was no announcement on the foreign profits consultation, disappointing big business.

Announcing a levy on non-doms almost identical to that outlined by the Tories, and giveaways on inheritance tax that advisers immediately questioned, the chancellor sought to nullify the poll boost the Conservatives earned from their IHT changes and domicile moves.

Darling said he would double the IHT threshold for married couples. But many such couples already use nil-rate trusts to double their allowances passing on assets to children, meaning the giveaway, costed at £1bn per year in Treasury documents, is unlikely to make many better off.

'This change, although likely to grab headlines, is in practice only giving to most people what they already have,' said Carolyn Steppler, tax director at KPMG in the UK.

The proposals on non-domiciles almost exactly mirror the Tory plans. Rather than charge a £25,000 levy, the government will introduce a levy of £30,000. And it will only apply once a non-dom has been in the country for more than seven years.

There was also a change to the residency rules, counting arrival and departure days as days spent in the UK when applying the 90-day rule on establishing residence.