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Entrepreneurs’ Relief Remains, Just.

Entrepreneurs' Relief

Entrepreneurs’ Relief Remains, Just.

11th March 2020

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Rishni Sunak, the Chancellor, today announced a number of measures, he says, to support the UK economy both long term and in light of the Coronavirus outbreak. However, what industry advisers were keeping their eyes on, was the announcement of any changes to Entrepreneurs’ Relief.

Entrepeneurs’ Relief is a tax break which entitles business owners to relief on the capital gains due on the sale of their business taking the tax rate from 20% down to 10%. Prior to the budget, each person had a lifetime limit of £10million to claim relief on the capital gains  made in such a business, so long as they had complied with certain criteria as to ownership and employment with said business.

The relief was originally intended to encourage people to set up their own business. However, many, including Boris Johnson, have criticised the relief of late, with the Prime Minister telling a group of female entrepreneurs in January: “I have to tell you, the Treasury is fulminating against it because there are some people who are staggeringly rich who are using that relief to make themselves even more staggeringly rich,”.

Over the past few months, there have been calls on the government to abolish Entrepreneurs’ Relief altogether. IFS economist, Stuart Adam opined “I’d be delighted to see it removed altogether if possible” and the Resolution Foundation has stated that the scheme is “expensive, regressive and infective” with the cost to the Treasury being estimated between £2bn and £3bn a year.

It was announced today that each individual’s lifetime limit of relief shall be reduced from £10m to £1m. This would save £6bn over five years. Rishni Sunak said he had listened to those wishing to abolish the relief, but stated that entrepreneurial risk-taking should be supported. Mr Sunak stated that some 80% of small business would be unaffected from the changes made in today’s budget.

The Chancellor has stated that by making such changes, the money saved will allow the government to cut other business taxes, with the announcement that business rates will be suspended for certain small businesses.

The upshot is that those owner managers wishing to sell their business can still take advantage of the lower 10% capital gains tax rate on the first £1million gain as a reward for investing or taking a risk to start up or run a business.

Please contact the Moorcrofts corporate team, if you would like further information regarding company sales.

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