Page last updated at 11:14 GMT, Sunday, 30 May 2010 12:14 UK

Capital gains tax: Osborne 'looking to take sting out'

Shares numbers
Selling shares can lead to a capital gains tax bill

The chancellor is "listening" to concerns about a planned rise in capital gains tax, Work and Pensions Secretary Iain Duncan Smith has said.

He told the BBC there would be "major exemptions" and the government did not want to harm entrepreneurs or families.

Tory co-treasurer Stanley Fink earlier said a rise would deter entrepreneurs and could lead to an exodus of talent.

Capital gains tax is now 18%, but the government says it wants to raise it to a rate similar to income tax rates.

That could mean tax rates for non-business assets such as the profits from second home sales more than double to 40% or 50%.

Mr Duncan Smith told the BBC's Andrew Marr Show: "First of all, none of the levels have been decided. The chancellor has been clear that he is listening to everything and he will make the final decisions.

"He's also talked about major exemptions for all sorts of different groups, because we don't want this to harm entrepreneurs, we don't want to harm families that are heading towards retirement who have actually saved.

Louise Stewart
Louise Stewart, political correspondent
It's a taxing problem for the coalition partners - what to do with Capital Gains Tax (CGT). With the country's coffers bare, the government has pledged to raise CGT from the current rate of 18% to match income tax rates of up to fifty per cent.

But several Tory Mps are warning that the move could hit entrepreneurs, second home owners and share holders - traditional Tory supporters.

Now Iain Duncan Smith has signalled the Chancellor George Osborne is listening - saying he is determined to "take the sting" out of the change.

Although the Treasury deny any suggestion of concessions they say Mr Osborne is examining all the options in front of him and will present his decision in the budget.

That may please backbench Conservatives but is unlikely to go down well with their political partners. The Liberal Democrat Energy Secretary Chris Huhne has already warned that any dilution of the Lib-Con deal on CGT would undermine the entire coalition agreement on tax.

"[Chancellor George Osborne] has discussed it with me and others and he is definitely looking for ways in which we can take the sting out of some of this."

Mr Fink told the Sunday Telegraph that if the tax was raised to 40% or 50%, then there should be some relief for businesses such as discounts or a tapered rate.

And a group of 12 business and economy experts urged the government to reconsider, calling the capital gains tax rise a "damaging mistake" and a "tax on growth, enterprise and jobs".

In a letter to the The Sunday Telegraph, they said it represented a "tax on growth, enterprise and jobs" with impacts including discouraging saving and investment.

"In addition, it may cause all this damage and yet raise no revenue, as some investors take expensive avoidance measures and others hold on to their assets in order to delay paying the tax," added the authors, who included Professor Philip Booth of the Cass Business School and Dr Ruth Lea of Arbuthnot Banking Group.

Senior Conservative MPs, such as David Davis, have argued the increase will penalise people who have invested in property or shares for their retirement.

In an article for the Daily Mail last week, Mr Davis said increasing the tax risked "punishing the virtuous" and "destroying aspiration".

"It will penalise hard work and saving. Far from taxing the rich, it will simply tax the elderly at their point of maximum vulnerability - when they enter retirement," wrote the former shadow home secretary.

But Lib Dem energy and climate change secretary Chris Huhne has warned against concessions on raising the tax.

In an interview with the Sunday Times, he said critics of the tax did not show "an awareness of the constraints that we're facing and the sense of competing priorities".

"It is terribly easy to run a single-issue campaign saying we don't like this, but that doesn't take into account the world of government," he said.

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