17 Jan 2020

Entrepreneurs Relief

202001 MHA Monahans Entrepreneurs Relief 220124364

Entrepreneurs’ Relief (ER) was introduced in 2008 as the successor to Business Asset Taper Relief. Essentially, it’s a tax break designed to encourage entrepreneurs to invest in and boost the small business market.

ER is the relief available that reduces the Capital Gains Tax rate to 10% for those that qualify when disposing of shares in a trading company, or part or all of a trading business up to a lifetime limit of £10m.

Research by the Institute for Fiscal Studies (IFS) in October 2019 and reported by The Guardian suggested that low rates of CGT have failed to boost investment in UK businesses but have provided large tax savings for company owners. The IFS found no evidence that tax-motivated retention of profits translates into more investment in business capital; profits retained with companies are held as cash or other liquid assets. The IFS stated that Entrepreneurs’ Relief cost the government about £2.4bn a year in lost income and was not working as intended.

In December 2019 The Times and the Daily Mail referenced the same research, as attention turned to March’s budget and the question of how the Conservatives will fund their recent election pledges. Their manifesto prohibits rises in income tax, National Insurance and VAT and promised to review and reform ER, one of the tax measures that in the party’s view, has ‘not fully delivered on [its] objectives’.

Several commentators interpret this 'reform' as probably meaning complete abolition, a move advocated by Former Permanent Secretary of HMRC and former Director General in HM Treasury, Sir Edward Troup, who has recently called on the Government to scrap Entrepreneurs’ Relief claiming that ER has “minimal impact on encouraging entrepreneurship in the UK”. Given Sir Edward’s former roles, there is a real possibility a policy to remove or amend ER could appear in the next budget.

It is clear that ER and other capital tax reliefs are under review, so it is vital that business owners take advice and plan accordingly.

For more information or to discuss this further, please contact Alison on 01793 818300 or send her an email.