1 Feb 2021

What will Rishi do next? Is Business Asset Disposal Relief (formerly and commonly still referred to as Entrepreneurs Relief) Under Threat?

Business Asset Disposal Relief

The first budget to start paying for the cost of the COVID pandemic is looming on 3rd March 2021; everyone and his uncle have a view on what we can expect but one thing is generally agreed, taxes will rise – the question is, which ones!

There is much advice out there for the Chancellor; this week I read an accountancy magazine article by a prominent tax practitioner advising against taxing money/assets already taxed once but suggesting that pensioners’ funds wouldn’t miss a “hair-cut” of a few hundred pounds each! That might prove unpopular with the silver voters! Those with a bigger brain than I have, are putting their money on some form of wealth tax.

The OFT (Office for Tax Simplification) have their eye on the CGT (Capital Gains Tax) regime – they recommend that CGT rates be brought in line with income tax rates.

So, what impact will that have? Currently, Business Asset Disposal Relief (“BADR”), the successor to Entrepreneurs Relief, allows business owners to extract capital built up in a company (with certain restrictions) at a very favourable tax rate of 10% by way of a Members’ Voluntary Liquidation; typically referred to as an “MVL” “IR35 contractor MVL” or solvent winding-up).

If the Chancellor withdraws BADR in the budget (bearing in mind that it has already been markedly scaled down from the Entrepreneurs Relief lifetime allowance - £10m assets down to £1m), then business owners could conceivably pay tax on those funds on extraction at their highest tax rate, if CGT is linked to income tax rates. The employed/self-employed have suffered considerable financial pain in the pandemic, so it wouldn’t surprise me to see some “virtue signalling” in the budget to reinforce the message that we are “all in this together”.

Some business owners have already accelerated plans to retire or dispose of their business and do something different, owing to new IR35 regulations or BREXIT or because the pandemic has irreparably damaged a previously profitable business. MVL numbers have increased markedly in recent months reflecting that and those nervous of an impending tax regime change.

I have no idea what the Chancellor will do, but the window of opportunity for tax planning before the budget is closing fast – we are busy on this and expect to get busier in February, with a final push if changes are actually confirmed on 3rd March 2021; hopefully to take effect from 6th April, not immediately!

To discuss this further, please contact Steve Elliott.