The original plan to bring in a flat 18% rate to replace taper relief, which offered 10% tax rate on the sale of business assets, has now been tweaked to include a 10% rate for the first £1m of profit from such sales.

The new regime will take effect from 6 April 2008 and will be a cumulative measure, impacting any number of sales up to £1m.

There are exemptions to the new rates, with an annual £9,200 untaxed, and the disposal of assets such as the main home of individuals exempt.

The new measure is close to the proposal by the Federation of Small Businesses (FSB) of halving the 18% rate for the first £750,000, which was thought to have won support in a meeting held yesterday.

It is also a much-improved offer on Darling's initial concession, suggested in October, of a tax-free break for the first £100,000.

FSB national chairman John Wright welcomed the news: "[The new rate] will go some way to protecting entrepreneurship in the UK as well as benefiting small business owners planning to pay for their retirement with the sale of their businesses.

"But the way in which the whole issue has been handled has seriously eroded small businesses' trust in the government. There has been huge uncertainty about what small businesses' tax liabilities would be from April 2008 and this has made planning for the future very difficult.

"Even now, small business owners have very little time to prepare before these new changes come in."

However, CBI  director-general Richard Lambert, was much cooler about the concession, describing it as "superficially quite clever ... but even the smallest business owner will lose taper relief and indexation and be worse off than before October". 

He added: "It is clear that the real wealth and job creators of the UK's economy, selling assets for a lot more, will be seriously clobbered. 

"The bottom line is that the reaction of the UK government, in the face of an economic slowdown, has been to slap on a major tax hike of £700 million."

The original flat rate of 18% was expected to result in a tax intake of £900m for the Treasury. The concession announced today is expected to reduce this by £200m.