Speculation increases about likely changes to entrepreneurs’ relief

22 January, 2020

There is mounting speculation about possible reforms, or even abolition, of entrepreneurs’ relief – potentially taking effect as soon as Budget Day on 11th March. Although there is as yet no certainty what will happen, entrepreneurs keen to take advantage of the current regime may want to discuss this further with us and look at potential ways to protect their tax position.  

Entrepreneurs’ relief, (which gives a 10% tax rate on gains on sales of businesses and business assets up to a lifetime cap of £10m) is popular with entrepreneurs but is said by an increasing number of commentators to reward those at the end of the business cycle rather than those struggling at the beginning.  Notably, criticism

along these lines has come from the Institute of Fiscal Studies, which promotes effective fiscal policy as well as by the former head of HMRC, Sir Edward Troup.  The same point has been made repeatedly in parliamentary debates reported in Hansard.

The Conservative party manifesto stated that if elected, the government would ‘review and reform’ entrepreneurs’ relief and last week The Times quoted the Prime Minister as saying at a meeting with entrepreneurs ‘the Treasury is fulminating against [entrepreneurs’ relief] because there are some people who are staggeringly rich who are using that relief to make themselves even more staggeringly rich’.

If the tide has turned on entrepreneurs’ relief, then it is possible that changes may take effect next tax year, or even from the budget date on 11th March.  Unfortunately it is not clear whether those changes are likely to be a change to the rate of relief, the cap for relief, or whether we might be looking at a total re-casting of the relief so that it is aimed at helping start-ups and SMEs at the beginning of a new business (a form of corporation tax relief perhaps, or a further NIC break for employees).

Those who were hoping to avail themselves of entrepreneurs’ relief in the near future, and for whom the relief might form part of the economic viability of their exit,  might consider bringing forward  any business sales currently underway to a date before 11th March.  The date of disposal for capital gains tax purposes is the date that unconditional contracts are entered into not the date the transaction is completed.  For the same reason those liquidating their businesses might want to conclude the liquidation before Budget Day.

Other ways to ‘bank’ the relief could include gifting or selling assets to a trust.   In such cases there will be a range of taxes to consider as well as capital gains tax but in suitable circumstances triggering a disposal to preserve the relief may deliver a potentially lower overall tax cost than in the scenario where entrepreneurs’ relief ceased to be available.

Cripps Pemberton Greenish has been advising a number of clients on the impact of potential changes to entrepreneurs’ relief.  If you would like to discuss entrepreneurs’ relief with one of our team please contact Elizabeth Middleton on Elizabeth.middleton@crippspg.co.uk or 01892 506 080.