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Update on Entrepreneurs’ Relief

Tax Partner Haydn Rogan considers the latest on Entrepreneurs’ Relief in light of the upcoming Budget.

There has been widespread speculation that the forthcoming Budget will include measures to restrict Entrepreneurs’ Relief. Entrepreneurs’ Relief is a tax relief that reduces the capital gains tax rate to 10% on up to £10 million of gains on the sale of certain qualifying business assets.

The 2019 Conservative manifesto announced an intention to review and reform the relief (which now costs the Exchequer more than £2 billion a year).

The potential changes

Whilst it is considered unlikely that the relief will be scrapped, particularly in the current post-Brexit economic climate where the Government is keen to promote investment and encourage entrepreneurs to set up new businesses, recent comments by the Prime Minister about the relief having greatest impact and benefit for the already wealthy have led many to speculate on a reduction in the limit from £10 million of lifetime gains to £1 million (this would also align with the lifetime pension pot limit).

Other potential changes could be:

  • to further restrict the types of assets that qualify (for example excluding shareholdings in certain asset backed companies or operating in the financial or advisory sectors along the lines of the restrictions which apply to the venture capital relief schemes); or
  • providing that relief is only available to those who meet certain minimum working time requirements in relation to the business.

The latter approach would prevent “non-executive” directors and certain other passive investors who are not involved in the day to day running of the business from benefiting.

Timing

The other uncertainty is around the timing of any changes. Will they come into effect:

  • from midnight on Budget day (11 March);
  • from 5 April;
  • from Royal Assent to the Finance Act implementing the changes; or
  • will the Chancellor simply announce a review with the intention being for any changes to be introduced in 2021 following the end of the Brexit transitional period?

What is clear is that those currently in the process of selling qualifying assets may want to accelerate the sale process if they can do so. For the rest, there may be other ways in which to trigger a disposal prior to Budget day but whether any such proposals are practical will depend upon the individual circumstances and an assessment as to whether such arrangements could fall foul of the widely drawn anti avoidance provisions HMRC have at their disposal.

If you have any queries about Entrepreneurs’ Relief and how the Budget may impact upon you, please contact Haydn Rogan, Partner on 0161 214 0517 or email Haydn.Rogan@Weightmans.com

 

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