Is it the end for Entrepreneurs’ Relief?
The other dreaded B word on everyone’s lips at the moment is Budget, and for good reason. The 11th March Budget is now looming, being less than 8 weeks away. Business owners may be feeling relieved that Labour’s plans to abolish Entrepreneurs’ Relief cannot be followed through, however, be warned- the current Government’s plans for its future aren’t very certain either.
The Conservative manifesto set out that Entrepreneurs’ Relief will be “reviewed and reformed” in the next Budget.
What is Entrepreneurs’ Relief?
Entrepreneurs’ Relief currently gives individuals a capital gains tax rate of 10% (as opposed to 20%) on up to £10 million of business disposals (or sales). Since its inception in 2008, it is estimated that around £25 billion of tax has been saved. Further reforms were made in the 2019 Budget whereby the holding period for qualifying shares was increased from one year to two years and revisions were made to the minimum 5% shareholding requirement. This now includes a 5% economic interest test.
What is the plan?
The overwhelming opinion from the Government appears to be that Entrepreneurs’ Relief only serves to make the rich richer and the Treasury is “vehemently” against it.
It is anticipated that further reform will be made to the scheme which could be effective from 5th April 2020, if not from the date of the Budget on 11th March 2020. It is unlikely that the tax break will be abolished altogether due to businesses’ firm opinion that this tax relief is necessary for new businesses to grow.
The new Budget is not guaranteed to reform the relief and there could simply be an announcement that there will be a consultation into the relief and its objectives. It is clear however that any amendments are likely to make the relief more restrictive rather than the opposite. Current estimates suggest that Entrepreneurs’ Relief relieves around £2 billion p.a. in tax which represents circa 1% of GDP (Gross Domestic Product).
What can you do?
At the moment, we need to wait for 11th March 2020 to be certain about any plans for Entrepreneurs’ Relief. The overwhelming message however appears to be that if any business owners are currently contemplating a sale, they should get on with it now. If the sale delays beyond Budget day itself (or the first quarter of 2020), there is a risk that the sale will be taxed differently which will likely cost the business owner more.