Labour has been accused of learning nothing from its farm inheritance tax fiasco as family firms were put on alert for a possible Budget raid.
Chancellor John Healey could try to raise cash by targeting rules which are often used to pass businesses down to the next generation, according to reports.
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.
A consultation on changes to the tax treatment of shares was launched by HMRC in June and closed last month. The Treasury refused to comment ahead of the Budget on October 28.
But businesses said that, having been hammered with red tape and extra costs since Labour came to power, they would not be able to absorb more outgoings.
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
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
The potential raid was likened to Labour's land grab after downgrading relief on inheritance tax for family farms.
Farmers protested against the policy of applying a 20 per cent charge to assets worth more than £1million, arguing it would cripple their trade or force them to sell rather than hand down to the next generation.
In the face of the protests, the Government U-turned to increase the threshold to £2.5million.
Shadow chancellor Andrew Griffith said: 'Far from reversing their attack on family businesses, Labour appear to have learned nothing after the family farm tax fiasco. The simple fact is we need businesses to be growing and hiring, not worrying about the next attack or tax.'
Neil Davy, chief executive of trade body Family Business UK, said family businesses make up 93 per cent of all UK private sector firms and already face 'significant cost pressures'.
They have been hammered by changes to business relief on inheritance tax and 'cannot absorb further tax increases on succession', he added.
Mr Davy said the Budget should 'support long-term investment by reinstating full Business Property Relief' rather than 'make succession even more difficult'.
Steve Perez, founder of drinks firm Global Brands, said the raid would be an 'attack' on the UK's five million family businesses and the 14 million people they employ.
He added: 'Family businesses are built over decades of hard work, sacrifice and investment, and the Government should be encouraging this legacy, not putting further barriers in the way.'