With the 11th March budget looming, speculation is rife that Entrepreneurs’ Relief (ER) is to be curtailed or even abolished. Introduced over a decade ago, ER allows eligible business owners pay capital gains tax at a reduced rate of 10% when they sell / exit their business, rather than the usual rate of 20%. Up to £10 million of gains can be sheltered by ER, making it a very important relief for many business owners.
So why is ER in the firing line now? There is a simple answer: it’s making the rich, richer.
Boris Johnson reportedly told a group of entrepreneurs that “the Treasury is fulminating against Entrepreneurs’ relief because there are some people who are staggeringly rich who are using that relief to make themselves even more staggeringly rich.” The Prime Minister’s comments come on the back of a report by the Institute of Fiscal Studies highlighting the cost of the relief (estimated at £2.4bn per annum), and concluding that the relief was not meeting its policy objectives of increasing investment by entrepreneurs. There is also criticism that ER rewards entrepreneurs when they sell up, although tax breaks are more important for start-ups and growing business.
Any amendments to the scope of ER, or its withdrawal, are likely to come into effect from 6 April 2020, but changes cannot be ruled out that as applying from 11 March,
Businesses already in negotiations should work hard to complete before 11th March.
Jacquelyn Kimber, Tax Partner at Newby Castleman says “ER is undoubtedly one of the most generous tax reliefs currently available, and with public finances under pressure it would not be surprising if the government chose to either restrict the level of gains eligible for relief, or make it harder to qualify in the first place. Tax breaks for successful business owners have long been a feature of the UK tax landscape though, so it would be highly controversial if the Chancellor chose to scrap ER altogether. I would like to see the an increased focus on making existing tax reliefs for start ups (Enterprise Investment Scheme (EIS) and Seed EIS easier to access and more attractive.”
To discuss any issues surrounding Entrepreneurs Relief or selling a business, please get in contact with Jacquelyn Kimber, firstname.lastname@example.org / 0116 254 9262.