Labour's new raid on family firms as Chancellor 'plots to charge income tax on share scheme'

Family firms have been put on high alert for a huge Labour tax raid in the Budget. Chancellor John Healey could target a mechanism often used to pass businesses down to the next generation without incurring crippling costs. Entrepreneurs wanting to retire can currently convert their holdings in a firm into 'redeemable shares', which are then bought back with the company's profits. The proceeds are at present subject to capital gains tax, which is 24 per cent for higher rate earners. But Mr Healey is said to be looking at treating that money as income instead, where the top rate is 45 per cent. As a result, someone trying to hand down a £1million firm would face a £450,000 bill - as opposed to the current charge of £240,000. And selling businesses on the open market would still be taxed as a capital gain under the plans, which could raise hundreds of millions of pounds a year. Chancellor John Healey could target a mechanism often used to pass businesses down to the next generation without incurring crippling costs in the first Budget under Andy Burnham A consultation on changes to the tax treatment of shares was launched by HMRC in June, with it closing last month. The Treasury refused to comment ahead of the Budget on October 28. Labour has already faced an outcry after downgrading relief on inheritance tax for family firms. Farmers protested against the charges being applied to assets worth more than £1million, arguing it would cripple their trade, forcing the Government to increase the threshold to £2.5million. Businesses have also complained about the hikes in National Insurance, minimum wage increases and a raft of red tape from workers' rights changes. Shadow chancellor Andrew Griffith said: 'This Labour Government seems determined to squeeze every part of the economy, punishing the people who take risks, create jobs and build businesses for future generations. The rumoured changes come after farmers protested against inheritance tax being applied to assets worth more than £1million, forcing the Government to increase the level to £2.5million 'Labour is once again coming after the very firms that keep our local economies running.' Accounting firm KPMG told the Telegraph it had 'significant concerns' about the impact on family businesses.