Chancellor John Healey is reportedly considering a fresh tax raid on family businesses that could almost double the cost of passing companies from parents to their children.
The proposals, being examined ahead of the October 28 Budget, would see some business transfers taxed as income rather than capital gains, potentially increasing the rate from 24% to 45%.
Under the plans, an entrepreneur handing down a £1million business through a redeemable share arrangement could face a tax bill of £450,000, compared with £240,000 under current rules.
The move would come on top of Labour's controversial inheritance tax changes affecting family businesses and farms, which are expected to raise £300million annually.
Accountants have warned that further tax increases could discourage succession planning and force owners to sell their businesses rather than pass them to the next generation.
John Endacott, a partner at PKF Francis Clark, told the Telegraph: “Long-standing family companies are still adjusting to the inheritance tax changes. Further taxes on passing businesses to the next generation risk taxing them to extinction.”
HMRC consulted on the proposals over the summer, although no final decision has been announced.
The Chancellor is seeking to address a potential £35billion fiscal shortfall ahead of his first Budget.